Because it could.
From “Apple borrows on the cheap to fund buybacks, dividends” posted Monday on Reuters:
Apple Inc on Monday capitalized on the Federal Reserve’s emergency measures in response to the coronavirus outbreak to issue its cheapest bonds in years, making it the latest blue-chip company to do so to fund stock buybacks and dividends.
Apple’s offering illustrates how companies with the best credit ratings are boosting shareholder returns by tapping cheap debt made available through the Fed’s backstopping of the credit markets…
The technology company raised $8.5 billion by selling four different bonds with maturities ranging from three years to 30 years. It sold a $2 billion three-year bond and a five-year $2.25 billion with coupons of 0.75% and 1.125% respectively, the lowest rates the company has paid on bonds with such durations since 2013, according to Refinitiv IFR data…
The Fed slashed interest rates to almost zero in March and said it would act as buyer of last resort in the investment-grade corporate bond market, in a bid to help cash-strapped companies access capital markets roiled by the economic fallout from the pandemic.
My take: Apple is the opposite of “cash-strapped.” But also, as investment manager David Schawel tweeted before the sale, “they’ve historically been amazing at timing when to issue.”
Apple’s SEC Filing.
“…. The Fed slashed interest rates to almost zero in March and said it would act as buyer of last resort in the investment-grade corporate bond market, in a bid to help cash-strapped companies access capital markets roiled by the economic fallout from the pandemic.”
Wilford Frost, the CNBC business news anchor, denoted to a financial analyst yesterday who Frost was interviewing that Apple has plenty of cash on hand. Frost inquired of the financial analyst “why” is Apple attempting to capitalize on the Federal Reserve’s emergency measures when the company is not “cash-strapped,” and roiled by the economic fallout from the pandemic.
The financial analyst defended Apple’s move saying it was a smart and astute business move.
Frost is a graduate of Oxford University with a degree in economics and is an astute business news anchor. Yet, he asked that specific question above.
Now, whether Frost asked his question for the purpose of his personal edification or for the purpose of his listening audience’s edification his question still was a subject inquiry, and seemed to resonate.
The common man and woman on the street will not have a level of economic and business sophistication to grasp the intricacies of Apple’s economic move. Just last week we saw multiple companies turn back government loans to the Treasury. These companies “legally and legitimately” obtained these government funds. Yet, News media and Consumer groups subsequently “lambasted” these companies into relinquishing their legally obtain funds.
While I do not believe such scenario will happen here with Apple, I always fear the power of an over zealous media often over reaching in their perpetual quest looking for story lines to sell news. Today will let us know if the media is seeking traction on this subject.
“Just last week we saw multiple companies turn back government loans to the Treasury. These companies “legally and legitimately” obtained these government funds.”
It’s not equivalent. Apple offering bonds is not comparable to the government offering loans. Completely different animals, and thus totally defensible.
Apple, or any company that has decent credit, has a fiduciary responsibility to its stockholders to “get the best deal”. Apple has made it clear that it is aiming for a “cash neutral” state where its debts and its cash are on a par with one another. Whether Apple buys its stock with its cash or with borrowed money that just so happens to be exceedingly low interest hurts no-one. Rather the opposite: Investors are crying out for means to protect their assets. Apple gives those investors a safe haven.
And btw, not every investor is wealthy. And more than a few who invested in Apple have seen themselves escape tough times as a result. True, many wealthy people have become even more wealthy. But it was because they backed the right horse, not because they were wealthy in the first place. Warren Buffett is a prime example.