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Sunday, 19 November 2017

Swiss Franc Bond: Apple's SFr1.25bn dual-tranche bond

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Enter the iSwissie

Apple made its debut in the Swiss franc market less than a month after the SNB dropped its FX bombshell in mid-January, reiterating the relevance of the franc market that had been unsettled by the recent shock.

The SNB on January 15 pulled the plug on the franc peg and dropped short-term rates to a deeply negative minus 0.75%. That move stunned – and stalled – the primary capital markets, as participants readjusted to the new paradigm.

Just 26 days later, Apple came with a jumbo dual-tranche deal, taking advantage of the new low rates and pent-up investor demand for quality corporates to net total funding of SFr1.25bn. Deals from foreign issuers in excess of SFr1bn were later dubbed Matterhorns, in view of it being so hard to ascend to that size.

The Swiss franc bonds followed massive annual multi-tranche deals in US dollars since 2013 and a debut euro outing in late 2014. As with those issues, proceeds were mainly put towards share buybacks, thus avoiding taxes that would be incurred if the company repatriated any of its vast overseas cash pile.

Given the negative swap rates in the franc out to nine years at the time, only longer-end deals would bring yields meaningfully over zero. That led to joint leads Credit Suisse and Goldman Sachs sounding out short 10-year and straight 15-year maturities, before opening a SFr500m minimum November 2024 issue at mid-swaps plus 27bp area and a SFr250m minimum February 2030 at mid-swaps plus 37bp area.

Demand was strong enough to upsize and tighten – unusual in the Swiss market – finishing up with SFr875m of 2024s at swaps plus 25bp and SFr375m of 2030s at plus 35bp, printed with respective 0.375% and 0.75% coupons. The bonds were sized to demand with minimal cutbacks.

“The debut deal took maximum advantage of Apple’s widespread name recognition, strong ratings and rarity value, and kept the franc on the global radar, showcasing its relevance despite difficult new market conditions,” said Dominique Kunz, head of Swiss debt capital markets at Credit Suisse.

The maturities fitted well with Apple’s debt profile, nestling between existing bonds in euros and dollars.

As one trader pointed out: “With an eighth more coupon [than the recent Novartis trade] and 4bp more spread for a better rated and bigger company, it’s a no-brainer.”

Against Aa1/AA+ rated Apple’s US dollar curve, one analyst pegged the 2024s as giving around 5bp of premium and the 15-year some 15bp–20bp through the curve.

Apple is such a big name that even the local mass-market tabloid wrote about a Swiss bond deal.

To see the digital version of the IFR Review of the Year, please click here .

To purchase printed copies or a PDF of this report, please email gloria.balbastro@tr.com .

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