Subscribe / Unsubscribe Enewsletters | Login | Register

Pencil Banner

Investors throw $52 billion at Apple, are Apple bonds a good investment?

Karen Haslam | May 3, 2013
Despite having $145 billion in the bank, Apple has decided to reach out to the debt market to offer $17 billion in bonds in order to pay money back to investors. Why would Apple need to go to such lengths and what does it mean to investors? We answer your questions.

Credit ratings agency Fitch is also concerned, it told Forbes, that Apple could be at risk of an implosion similar to Sony, Nokia, and Motorola Mobility. "Cupertino simply doesn't have the long-term contracts that a true top-notch credit rating requires", explains Ars Technica.

What is an Apple bond?

Apple offered floating-rate notes that mature in 2016 and 2018 and fixed-rate securities that are due in 2016, 2018, 2023 and 2043, according to a regulatory filing.

The following bonds were available:

$1 billion, floating rate, three year maturity$1.5 billion, fixed-rate, three year maturity$2 billion, floating-rate, five year maturity$5.5 billion fixed rate, ten year maturity$4 billion fixed rate, five year maturity$3 billion fixed rate, thirty year maturity

We wonder what Apple will be worth in 2043

Is an Apple bond a good investment?

Investors know that Apple has the money to pay them back. They are also a good alternative to treasury bonds, as explained by Sage Advisory Services Mark MacQueen, who told WSJ: "Apple bonds are a low-risk alternative to Treasury bonds in this yield-grabbing environment."

However, there are still risks. MarketWatch outlines the risks of buying the bonds: "While the Federal Reserve has been holding rates down to spur economic growth, that won't last forever. When rates climb, bond prices fall, meaning investors in Apple bonds could lose money even if the company's next big product is as big a hit as the iPhone or iPad. Indeed, investors have pulled more than $1 billion from the iShares investment-grade bond ETF so far this year."

Who's selling Apple bonds?

Goldman Sachs Group and Deutsche Bank are the underwriters.

Who's buying the Apple debt?

According to the WSJ, investors came from all over the credit markets, including overseas buyers and municipal-bond investors, and portfolio managers who would normally look for "ultrasafe government debt". Pension funds, insurance companies and hedge funds also bought Apple bonds.

How much Apple debt has been bought?

According to reports, by Tuesday morning the bankers had enough investors to sell the Apple debt two times over. Reuters sources claimed investors could "barely submit orders fast enough to get in on the deal from Apple, the only major tech company without a single penny of debt on its books". By midday there were more than $50 billion of orders. By the end of the day $52 billion was being offered for just $17 billion bonds. It was "one of the most hotly desired bond deals Wall Street has ever seen", according to bankers at Deutsche Bank.

Even after the markets had closed, investors who didn't get in on the deal were clamoring to buy bonds in the "grey market" - buying from investors who had got in on the initial offering. Investors can use this market to buy bonds after a deal has been launched but before the bonds are tradable, according to the WSJ.

 

Previous Page  1  2  3  Next Page 

Sign up for CIO Asia eNewsletters.