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Apple timed its bond sale perfectly

In late April, Apple raised US$17 billion as part of a bond sale to help finance its $55 billion stock repurchasing program and increased dividend payouts.

A common question at the time was why a company like Apple, with over $145 billion in the bank, would need to raise money at all. The short of it is that much of Apple's cash lies overseas and the company would incur a 35 percent tax hit if it chose to repatriate it back to the US. As a result, Apple found it more economical to take advantage of historically low interest rates and borrow the money instead. In other words, the interest on its newly acquired debt is much lower than the tax hit it would otherwise take by using its own funds.

I've discussed the clever economics of Apple's bond sale before, and as luck would have it, the timing of Apple's bond offering itself couldn't have worked out any better.

Bloomberg points out that the historically low interest rates Apple took advantage of just a few weeks ago have gone up. Apple's 10-year Treasury bonds, for example, were initially sold with a 1.67 percent yield, a figure which has since gone up to 2.13 percent.

Even more impressive are the savings Apple saw with its 30-year bonds.

Apple's biggest savings are on its longest-dated securities due May 2043. The $3 billion of 3.85 percent bonds, issued at 99.418 cents, fell to 92.084 cents on the dollar as of May 31, pushing the yield to 4.32 percent, Trace data show. They dropped to 91.83 cents to yield 4.34 percent at 8:54 a.m. in New York today. The extra yield investors demand to hold the debt rather than similar-maturity Treasuries has widened to 103.7 basis points from 100 at issue.

With rising yields, Bloomberg notes that if Apple went through with the same bond offering today, it would have cost them "an additional $396.9 million annually for 30 years."

All in all, it seems that Apple couldn't have timed its bond sale any better. Of course, it's not as if Apple could have predicted the optimal time to enact its bond sale, but still, luck was clearly on Apple's side this go around.

Then again, with billions upon billions in the bank, it's not as if Apple is exactly in dire need of luck to begin with.



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Apple

In late April, Apple raised US$17 billion as part of a bond sale to help finance its $55 billion stock repurchasing program and increased...