Apple issued $6.5 billion in bonds

Apple Inc issued $6.5 billion in bonds on Monday. The company can use the bond offering to raise funds, instead of spending cash on hand – particularly as global interest rates are so low.

Some of the funds raised will be used for the company’s share buyback program. Apple expects to return over $130 billion to shareholders by the end of 2015.

The decision to raise funds was made even though the company has over $178 billion in cash. Large companies often raise funds by issuing bonds.

Approximately 90% of its cash is outside the US, which means that it would have to pay a whopping 35% rate of corporate tax if the money is returned from overseas, explaining why the company is borrowing rather than using what it has in cash.

Valuable brandApple is the world’s most valuable brand.

Two years ago it sold $17 billion in what was then the largest corporate bond sale in history before Verizon made a $49 billion bond offering.

According to Bloomberg, since April 2013 Apple has issued $32.5 billion of bonds in three offerings.

While some of the bonds will mature in five years, others won’t for about thirty years, according to reports.

“The borrowing is a bullish signal in the confidence of their business,” said Michael Walkley, an analyst at Canaccord Genuity Inc. in Minneapolis.

“A debt offering is about the sustainability of providing strong long-term cash flows, and taking advantage of attractively priced financing.”



 

Moody’s rates Apple as Aa1, which is the second-highest rating available. Bonds from companies with credit ratings this high are a popular choice among investors.

Mike Buchanan, Pasadena, California-based head of global credit at Western Asset, told Bloomberg in a telephone interview:

“Apple is getting attractive terms. The demand for high quality will continue to encourage companies to tap the market.”

Goldman Sachs and Deutsche Bank managed the capital-raising.