Apple borrows $7bn even as tax laws may fill cash coffers

Bloomberg

Apple Inc., looking to fund stock buybacks and dividends, sold $7 billion of bonds even as proposed new tax laws may leave it awash in cash it previously couldn’t use.
The iPhone maker sold notes in six parts. Apple has been the second-most active US non-financial issuer of debt this year
behind AT&T Inc., data compiled by Bloomberg show. Kristin Huguet, a spokeswoman for Apple, didn’t return messages seeking comment.
Its bond sale comes shortly after House Republicans unveiled their proposal for overhauling US tax law, which would charge companies up to a 12 percent tax on the overseas profit they’ve earned, compared with the 35 percent they would pay if they brought that money back home now.
Companies with high cash holdings overseas, typically in the tech and pharmaceutical industries, may end up with access to billions of extra dollars that they would otherwise have to keep abroad, meaning Apple could be borrowing at a time when it doesn’t need more cash.
Apple’s note sale underscores how uncertain companies and investors are about how the US tax law will be changed. As of September 30, Apple was sitting on $268.9 billion in cash and marketable securities, 94 percent of which was outside the US, Chief Financial Officer Luca Maestri said on an earnings call.
The company is constantly selling bonds to fund its share repurchases and dividends, said Noel Hebert, an analyst at Bloomberg Intelligence.
“You can’t put everything on hold on the hope that tax policy comes through,” Hebert said. “If you end up with tax policy that’s supportive, maybe they’ll come back to take down some of the debt or fund a huge dividend.”
It is still unclear how tax laws will be changed. Senator John Cornyn of Texas, the No 2 Republican leader, said that his chamber would be starting over when it came to writing a bill, and would not use the House Republicans’ proposal as a starting point.
Apple has “always been a very strong advocate for comprehensive corporate tax reform,” Maestri told Bloomberg. Repatriation could allow Apple to accelerate the pace of its capital return programme, he said at a conference in February.
Speaking in Newport Beach, California, Treasury Secretary Steven Mnuchin said that Apple Chief Executive Officer “Tim Cook and many other CEOs, they’re looking forward to bringing their cash back to the United States and investing it here.”
Apple’s latest sale comes at a time it has when it has been uncharacteristically active. The company sold $5 billion of debt two months ago to fund its capital return programme just before unveiling its 10-year anniversary iPhone. That came on top of its first bond sale in Canada for $1.96 billion, also for share buybacks and dividends.
“It’s unusual for Apple to be so active in the debt markets in the second half of the calendar year,” CreditSights analyst Jordan Chalfin said in a report. “Apple is clearly not waiting on tax reform.”
The longest portion of the fixed-rate unsecured bonds Apple sold are $1.25 billion of 30-year securities that yield 1 percentage point more than Treasuries, down from initial price talk of around 1.125 percentage points, according to a person with knowledge of the matter, who asked not to be identified as the details are private. The company can buy them back at face value after six months.