Debt finance

Apple seals $10 billion debt financing as capital markets activity soars

Apple landed $10 billion in debt financing on Thursday as capital markets activity remained robust, with Microsoft and AT&T also borrowing large sums from investors this week.

Apple’s latest bond sale follows a stellar start to the year for corporate and bank borrowing, with more than $185 billion raised by blue chip groups in the United States, according to Dealogic. This week, Microsoft borrowed $17 billion in the biggest bond offering of 2017, while AT&T sold $10 billion in paper.

“The market has been very receptive to new debt,” said Monica Erickson, portfolio manager at asset manager DoubleLine. The level of emission was “beyond what anyone expected”.

The price of new debt has generally risen as investors pour more cash into the asset class. Last week, $2.7 billion poured into investment-grade U.S. corporate bond funds, bringing year-to-date inflows to $12.4 billion, according to Lipper.

Microsoft’s recently issued 2027 notes traded on Wednesday yielding 78 basis points above a benchmark treasury bill, seven basis points below their original issuance. Yields fall as bond prices rise.

Investor demand for Apple bonds was intense. The underwriters, led by Deutsche Bank, Goldman Sachs and JPMorgan, had orders of more than $36 billion for the offering, according to two investors and a banker familiar with the deal. Apple originally planned to raise between $6 billion and $8 billion.

Trading volumes are also higher alongside the debt deluge, with a record $38.5 billion in corporate bonds changing hands on Tuesday when Microsoft’s new debt began trading. Over the past three weeks, volumes have averaged just under $30 billion a day, more than 20% above the 2016 daily average.

Corporate America has issued a huge amount of debt since the start of the decade, with more than $1 billion borrowed each year since 2010. Many companies, including several in the tech sector, have turned to the markets of debt to fund shareholder returns in an attempt to avoid the tax hit of repatriating cash generated overseas. Apple is full of cash held offshore.

Goldman Sachs analysts predicted in January that S&P 500 groups would repatriate $200 billion of cash held offshore this year, which “would be primarily for buyouts.”

Apple holds more than 90% of the $246 billion in cash on its balance sheet in overseas subsidiaries and has become one of the largest debt issuers since launching its multi-billion dollar buyback and dividend program in 2012. The group has since returned around $195 billion to shareholders in buyouts and dividends.

The US technology group will use the proceeds from the sale for share buybacks and to fund dividends, as well as for general corporate purposes.

The iPhone maker has issued more than $90 billion in debt since 2013, including about $25 billion last year, according to Dealogic. Analysts at ratings agency Moody’s said Thursday’s sale would take the company’s adjusted debt to more than $100 billion.

Apple issued the debt in nine tranches, including three floating rate notes that mature in 2019, 2020 and 2022. The fixed rate notes cover maturities from two to 30 years.

The new 10-year notes are priced 88 basis points above the yield of benchmark Treasuries of similar maturity, or around 3.35%. Banks had started marketing the 10-year bonds with a yield up to 110 basis points above the Treasury, but tightened prices as order books grew.

Apple’s 2026 notes, which it sold last year at a yield of 2.48%, traded on Thursday with yields between 3.25 and 3.3%.