Amid a sharp ramp higher in debt-financed shareholder returns over the last two years, Apple (Nasdaq: AAPL) today is shopping a benchmark offering of SEC-registered notes across as many as seven tranches. The company is eying two- and five-year floating-rate notes, along with fixed-rate notes due 2017, 2020, 2022, 2025, and 2045, according to regulatory filings.
Bookrunners for the AA1/AA+ offering are BAML, Goldman Sachs, and J.P. Morgan. Proceeds are earmarked for general corporate purposes, including stock repurchases and payment of dividends under the recently expanded capital-return program, funding for working capital, capital expenditures, and acquisitions and repayment of debt, according to regulatory filings.
Initial whispers for the two-year issues started in the areas of L+15 and T+40, and, for the five-year issues, in the areas of L+35-40 and from T+50-55. Initial whispers for the longer-dated issues started in the areas of T+85 for seven-year notes, T+110 for 10-year notes, and T+150 for 30-year bonds.
Bondholders exposed to Apple and ratings agencies assessing the company’s credit profile indicated only modest concern after the company on April 27 boosted and extended its capital-return initiatives from already lofty levels against the backdrop of record-high cash holdings.
Apple in early February placed a $6.5 billion offering, following an upsizing from $5 billion, to mark its third blockbuster bond offering in as many years backing the massive capital return program.
Apple’s 3.45% 30-year bonds due Feb. 9, 2045, which were priced at T+125 as part of that latest offering, changed hands this morning at T+128, or little changed since the start of the month, trade data show. Trades in the 2.5% 10-year issue due Feb. 9, 2025 were reported this morning in the T+90 area, or little changed net of the last month, from pricing on Feb. 2 at T+85.
Apple previously placed a $12 billion offering in late April 2014, after it printed a $17 billion deal exactly one year earlier, the latter reflecting a record-setting total for a corporate bond offering at the time of pricing. That latter deal remains tied for fourth on the list of biggest deals ever printed, LCD data show.
Apple now targets $200 billion of cumulative buybacks and dividends through March 2017, from the prior plan – which dates to August 2012 – for $130 billion of returns through the end of this year. The new target reflects a $50 billion boost to its share-repurchase authorization, raising the total amount to $140 billion, and an 11% increase of the quarterly dividend payout, to $0.52 per share.
“While most of our program will focus on buying back shares, we know that the dividend is very important to many of our investors, so we’re raising it for the third time in less than three years,” Apple CEO Tim Cook said yesterday in a statement. The company has said it intends to boost dividend payouts on an annual basis going forward, according to ratings agencies.
For reference, the company, from April 2012 through March this year, bought back roughly $80 billion of its shares under the buyback authorization, which after the upward revision now leaves roughly $60 billion of authorization through March 2017. It paid out more than $32 billion in dividends over the same trailing period.
Standard and Poor’s and Moody’s on April 28 said the upward revisions for shareholder rewards do not affect current AA+/Aa1 ratings, respectively, and stable outlooks.
S&P noted “strong” second-quarter earnings, including a 27% year-to-year rise in revenue, to $58 billion, a slight rise in adjusted EBITDA margin, $65 billion of free operating cash flow over the last 12 months, and a record-high $194 billion balance of cash and investments at the end of the period. "iPhone sales rose 40% year over year and made up a record 69% of total revenues during the quarter, due in part to declining iPad sales and slower growth in services and other products,” S&P analysts said today.
“Despite the increase in the capital return program, the company will maintain a significant net cash position, and we view its financial policy as conservative,” S&P added. “While we expect total shareholder returns to moderately exceed discretionary cash flow on occasions, robust overall cash generation affords the company the flexibility to return large amounts of cash to shareholders without detracting from the overall credit quality.” – John Atkins