Katie Marsal
Apple today is expected to complete a two-part sale of Swiss-franc bonds, raising at least $1.08 billion U.S. to help fund its massive ongoing capital reinvestment program.
The bond will mature in November 2024 at at implied yield of about 0.25 percent, and the 15-year bold will price at an implied yield pegged at 0.7 percent, according to The Wall Street Journal.
Apple is opting to offer its bond in Swiss francs because demand for debt has pushed government bonds in Switzerland below 0 percent on maturities stretching out to 11 years. That's pushed prices on corporate bonds down as well, which is expected to allow Apple to borrow money cheaply.
The money borrowed by Apple is expected to be used for dividend payments and share repurchases. With some $179 billion in cash, and more than $140 billion of that overseas, Apple has been using its massive pile of excess money to reinvest in itself.
The Swiss franc-denominated bond sale will be overseen by Goldman Sachs and Credit Suisse. Word of its sale first surfaced earlier this week.
Demand for Apple bonds in the Swiss franc market is expected to be strong, given that the company is widely known and profitable.
Tuesday's expected sale will be Apple's second bond issue of the year. The company raised $6.5 billion last week, with a roughly 2.5 percent yield for 10-year notes and a 3.5 percent yield for 30-year notes.
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23 Comments
This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.
[quote name="Macnewsjunkie" url="/t/184745/apple-to-raise-at-least-1-08-billion-from-two-part-swiss-bond-sale#post_2673744"]This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.[/quote] Where does it say "the payments are made in Dollars"? I missed that. Oh you mean dividends ... I see.
This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.
As long as it costs less than 35% ($350M), it's better than buying those shares or paying those dividends using money repatriated to the USA.
This will cost Apple money from interest and arbitrage because the payments made in Swiss Francs will cost more to redeem if the payments are made in Dollars. Over time the Swiss Franc is expected to continue to strengthen against the Dollar. I guess if Apple already earns enough to pay this from income in the Swiss Franc it will be a moot point, but it does still potentially have a higher opportunity cost than debt denominated in Dollars.
Maybe they think that they are implicitly hedging against currency risk by issuing bonds in a variety of currencies. But the swiss franc in particular seems like a risky idea. So much currency risk right now is political... I think I'd stick with $$. But hey -- I'm sure the Goldman guys are pretty smart. Maybe it will work out fine.
I don't see how Apple can use this money for their dividends and share repurchases? Wouldn't this money just get dumped into their foreign cash pile and face the same issues that they typically do in bringing that money to the US?