Date: Wed, 6th May 2020
Author: Kate Duguid, Joshua Franklin
On Monday, Apple Inc capitalized on the Federal Reserve’s emergency measures to the coronavirus outbreak and issued its cheapest bonds in history. This puts Apple as the latest blue-chip company to fund stock buybacks and dividends in similar efforts.
Apple's contribution as such, demonstrates how companies with the best credit ratings boosts shareholders returns by tapping cheap debt made available via the Fed's backstopping of the credit markets. Apple shares are predominantly flat year-to-date, in comparison with a 12% drop in the S&P 500 Index.SPX.
$8.5 billion was raised by selling four different bonds with maturities ranging from three years to 30 years. The tech company sold a $2 billion three-year bond and a five-year $2.25 billion with coupons of 0.75% and 1.125% respectively. According to Refinitiv IFR data, this would be the lowest rates where Apple has paid on bonds within such durations since 2013. The data also suggests, the coupons on Apple’s 10-year and 30-year bonds were also the lowest the company has paid in past years.
Apple stated in a regulatory filing that the funds will support general corporate proposes, such as share repurchases and dividend payments. During the six months ended March 28, Apple spent $38.5 billion to repurchase their own stock.
In March, The Fed marked down interest rates to almost zero and mentioned it would act as buyer of last resort in the investment-grade corporate bond market, to support cash-strapped companies access capital markets roiled by the economic fallout from the pandemic.
The Federal Reserve has yet to buy a single corporate bond but the intervention has fuelled record issuance by companies in need of funding. Boeing Co (BA. N), Marriott International Inc (MAR.O) and Ford Motor Co (F.N) are examples.
The policy has also benefited shareholders of financially strong companies, such as Apple that had just over $40 billion in cash as of end of March, by reducing its cost of capital.
Last week, drugmaker Biogen Inc (BIIB.O) and U.S. health insurer Anthem Inc (ANTM.N) also sold new bonds at low rates. The companies said these were partly to fund share buybacks.
Goldman Sachs & Co, BofA Securities, JPMorgan and Morgan Stanley were joint book-running managers on the Apple bond offering.
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