Tuesday, 11 December 2018

Investors take a bite out of Apple's new US$7bn bonds

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Apple’s surprise new US$7bn six-part bond - its fifth dollar one this year - received US$12.3bn in orders, allowing the company to price the deal with minimal new issue concessions.

The tech giant approached investors Monday with fixed-rate tranches of two, three, five, seven, 10 and 30-year maturities.

Apple, rated Aa1/AA+, was able to bring in levels by some 12.5bp-15bp on each tranche from initial thoughts to pricing.

The deal was priced to perfection: levels did not budge from guidance to pricing on the US$1bn two and three year tranches, which priced at T+20bp and T+30bp, respectively.

All other tranches saw tightening of 3bp from guidance to pricing. The US$750m five year priced at T+42bp, the US$1.5bn seven year priced at T+60bp, the US$1.5bn 10 year at T+72bp, and the US$1.25bn 30-year priced at T+100bp.

At those levels, new issue concessions were shaved down from around 20bp premiums at talk to a mere 2bp-4bp across the curve compared to outstanding bonds.

The new bonds took some investors by surprise. Apple is expected to be a big beneficiary of new tax reform proposals that may end much of the tax on foreign profits, making it easier for the company to bring its cash piles to the US.

Apple ended the fourth quarter with US$268.9bn in cash, 94% of which was held outside the US, CFO Luca Maestri said on Apple’s earnings call this month.

“Apple is being very opportunistic,” Jason Shoup, senior portfolio manager at Legal & General Investment Management America, said.

“It looks like they want to take advantage of some of the credit the market is already giving them for repatriation talk,” he said.

Apple’s new US$7bn bonds make it the third most active issuer in the US corporate bond market so far this year, taking its total to US$30bn, according to Thomson Reuters data from SDC Platinum.

AT&T leads the field in US IG corporate issuers, having priced US$34.8bn of bonds year-to-date. The telecommunications giant is closely followed by Citigroup Inc, which has priced US$34.65bn in new bonds so far in 2017.

Bookrunners were Bank of America Merrill Lynch, Goldman Sachs and JP Morgan.


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