Apple Sold Some Bonds

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Well someone today did an entirely non-imaginary debt offering to fund a stock buyback so bully for them. Should we look at some things Apple's debt deal is bigger than (most of them!) and other things its yield is smaller than (also most of them!)? I guess that's a thing, I don't know. It's a big bond deal, but still, one should keep it in perspective. Apple sold more bonds than iPods, yes, but fewer bonds than iPads. This is not the category killer that iPrefs could have been.

I assume a termsheet will hit Edgar momentarily and I'll have wasted my time and be slightly wrong but in the interim I made this list of what seems to have been on offer:1

That's 5-10bps outside of where Microsoft priced last week. The deal seems to have been multiple times oversubscribed; presumably some buyers whose orders don't get filled will console themselves buying Facebook shares or something.

So those rates are low, no? Assuming a 35% tax rate hahahah, the after-tax cost of the 30-year is around 2.5%, and the average after-tax cost is around 1.25%, compared to Apple's (entirely after-tax) dividend yield of 2.75%.2 So every $1,000 bond they issue to buy back stock saves them around $15 a year in cash that they'd otherwise be paying out to stockholders. Back when I was pitching share repurchase transactions I suppose that would have been a selling point, but here I don't know. Apple's bizarre problem is that it's raking in money faster than it can get rid of it, and this deal sort of exacerbates that problem, though only by a relatively trivial $250mm a year or so. No wonder they don't seem to have pushed too hard on pricing.3

Apple wows market with record $17 billion bond deal [Reuters]
Apple Raises $17 Billion in Record Debt Sale [DealBook]

1.Sources: the preliminary prosupp has the tranching but not size and terms. Bloomberg - AAPL <corp> GO - has what it thinks are the sizes of each tranche, and the spreads. You can also see pre-sale spread estimates here (5bps north of my chart), and Reuters' report of sizes and 5bps tightening here. Swap and Treasury rates from Bloomberg USSW at around 5pm, so not quite lined up with pricing, don't take this too seriously.

Oh, on the swapped rates - those are fake and all, but still: it's pleasing to me that Apple sold $3bn of 3- and 5-year floating rate bonds all based on 3-month Libor, with the very standard old definition of how to calculate Libor ("LIBOR will be equal to the offered rate for deposits in U.S. dollars having an index maturity of three months, as such rate appears on the Reuters Page LIBOR 01" etc.),a and with a price that, on a mid-swap-to-fixed basis, is perfectly in-line with its fixed-rate bonds. Here you can read about CFTC chairman Gary Gensler saying that Libor is "unsustainable." Here you can read a Matt Taibbi piece - beginning with the modestb claim that "The Illuminati were amateurs" - saying ... I don't know, something bad about Libor and interest-rate swaps, who can really tell. I submit to you that the market disagrees.

a.Though with a risk factor about Libor:

Uncertainty relating to the LIBOR calculation process may adversely affect the value of your floating rate notes.

Regulators and law enforcement agencies in the United Kingdom and elsewhere are conducting civil and criminal investigations into whether the banks that contribute to the British Bankers’ Association, or the BBA, in connection with the calculation of daily LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR.

Actions by the BBA, regulators or law enforcement agencies may result in changes to the manner in which LIBOR is determined. At this time, it is not possible to predict the effect of any such changes and any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Uncertainty as to the nature of such potential changes may adversely affect the trading market for LIBOR-based securities, including the floating rate notes.

b.And, um, surely true?

2.Hahaha because:

The Company’s effective tax rates were approximately 25.2%, 24.2%, and 24.4% for 2012, 2011, and 2010, respectively. The Company’s effective rates for these periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

Still, though, if they used the money to pay dividends, it would be taxed at 35%. Anyway, at 35%:

And at 25%:

3.From Reuters:

But some investors said Apple was leaving some spread on the table so that the deal, which was to price later on Tuesday, would eventually trade tighter than the Microsoft issue - and so that Apple could get even better pricing next time round.

And because who gives a fuck I guess. Perhaps relevant:

Meanwhile, as a loyal user of Apple products I'm a little saddened to think of Tim Cook and company spending time thinking about bond spreads and dividend yields rather than bringing a Retina iPad Mini to market as soon as possible or improving iCloud.

I bet it's different people doing the spread-optimizing and the iCloud-improving, but still.

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