Why Apple, with $91 billion net cash, is borrowing another $14B

“Net cash neutral means that total cash = total debt.” — CEO Tim Cook

From MarketWatch’s “Apple sees blizzard of demand for $14 billion debt deal” posted Monday evening:

Apple Inc. attracted more than $33 billion worth of orders for its new $14 billion debt deal on Monday, underscoring the continued scramble for all things tied to the smartphone and computer giant.

Initially, the class was pitched to investors at a spread of about 105 basis points above Treasurys, but narrowed throughout the day. Last week, similar bonds sold by convenience store chain 7-Eleven Inc. SVNDF, -2.07% priced at the higher 105-basis-point level over Treasurys, according to BofA Global data.

Lower spreads often point to high demand for an asset or a risk-on market tone, since spreads are the premium that investors are paid on bonds above a risk-free benchmark to compensate for credit risks.

Its debt deal followed on the heels of Apple posting its highest quarterly revenue ever last week, with the new iPhone 12 helping power the company to its first $100-billion quarter in sales.

My take: Net cash neutrality ain’t easy to reach when free cash flows so freely.

13 Comments

  1. Fred Stein said:
    They got the money at a great rate, with some maturities out to 40 years.

    They can use some of the proceeds to pay off higher rate bonds as they mature. Per Bloomberg Barclay, their 9 year bond is 1.86% – nice if you buy back stock with an internal yield of 3%.

    The real question is why not borrow and buy back more? They number are so good.

    4
    February 2, 2021
  2. Jerry Doyle said:
    How much of this net cash pile is on hand, and how much was earned outside the US and is being held outside the US subject to corporate tax if returned? That’s the basis for borrowing this money, right? They don’t have sufficient amount on hand to access?

    2
    February 2, 2021
    • Robert Paul Leitao said:
      Jerry: High US corporate tax rates were the reason dollars were held off-shore prior to US corporate tax reform. This is no longer the case. Since corporate tax reform in 2017, well over $1 trillion in foreign-sourced earnings have been brought into the Unites States by US-based companies. Apple is borrowing now at very low rates most likely to assist with timing of share repurchases and capex investments and to possibly assist with maturing debt instruments.

      4
      February 2, 2021
  3. Gregg Thurman said:
    This round of debt financing tells me that Apple may say its goal is net zero cash, but the reality is that, internally, they don’t expect to get there in the next 10 years (if ever).

    Personally, I think net zero cash is a myth. Once there, AAPL will plateau, if not decline, because it probably signals the end of share buybacks.

    1
    February 2, 2021
    • Rodney Avilla said:
      If net zero cash is obtained by dividends, then your conclusion makes sense. But if net zero cash is obtained by buybacks, then they will have to continue buybacks to maintain net zero, in light of the cash machine Apple has become, and will remain so for many years to come.

      6
      February 2, 2021
      • Gregg Thurman said:
        Yeah, my conclusion was a reach.

        2
        February 2, 2021
    • Robert Paul Leitao said:
      Gregg: Both Tim and Luca have publicly and repeatedly stated achieving a neutral net cash position is the company’s plan. While that may take years, I doubt either of them would state a policy publicly (and repeatedly) only to privately walk back the plan. I take them at their word as does the investor community. The SEC would not look kindly at an internal change of policy without that change being stated publicly. The decision to borrow doesn’t work against that plan. From an accounting standpoint, it’s a net cash neutral transaction. The company picks up cash with offsetting debt obligations.

      3
      February 2, 2021

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