Shares of Apple Inc. continued their rally on Tuesday, rising more than 2.9 percent, helped in part by news the company successfully completed a US$17 billion bond sale. Apple plans to use the money to finance a larger dividend for shareholders and an aggressive stock buyback plan.
Apple announced the plan to raise money on the bond markets on April 23rd, the same time it announced a $60 billion increase in its dividend and share buyback plans—$10 billion in dividends and $50 billion in buybacks.
Apple has $145 billion in cash on hand, more than enough to handle its aggressive shareholder return increase. The problem for the company is that most of its money is offshore, where it sits avoiding U.S. corporate tax rates.
Wall Street wouldn't be keen on Apple actually ponying up to Uncle Sam, and so Wall Street approves of keeping the money offshore, but Wall Street also wants Apple to give that money to its shareholders, to whom it belongs.
What's the world's most valuable company (Apple is valued at $415 billion, Exxon is valued at $397.8 billion as of Tuesday's close) to do? It would be a conundrum if it weren't for record low interest rates that make borrowing money (for those who don't actually need it) all but free.
Hence the bond sale on Tuesday. It was $17 billion, the largest non-financial institution corporate bond sale in history, according to MarketWatch. The media outlet separately reported the specifics of the bond sale, saying that Apple broke up the bonds into six parts.
- Three-year fixed-rate notes at 20 basis points (0.2 percent) above the three-year fixed-rate Treasure notes (T-notes).
- Five-year fixed-rate notes at 40 basis points above fixed-rate T-notes.
- Ten-year fixed-rate notes at 75 basis points above fixed-rate T-notes.
- 30-year fixed-rate notes at 100 basis points above fixed-rate T-notes.
- Three-year floating rate notes at 5 basis points above the London Interbank Offered Rate (Libor).
- Five-year floating rate notes at 25 basis points above Libor.
In other words, Apple was able to borrow $17 billion paying rates almost as low as the U.S. federal government.
Apple completing the bond sale was taken as a good sign by investors, who sent the stock higher. $AAPL ended the day at $442.78, a gain of $12.66 (+2.94 percent), on strong volume of 24.7 million shares trading hands. That's the highest the stock has traded in the last 30 days, though it is still well off it's all-time closing high of $702.10 set on September 19th, 2012.
*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.