Thursday, 18 October 2018

UPDATE 2-Apple surprises with new bond offer

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Apple surprised the bond market Monday with its fifth bond deal of the year despite being seen as a beneficiary of tax reform proposals that include making it easier to repatriate cash.

Investors said the six-part bond could be around US$6bn to US$7bn in size.

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

The US Congress unveiled a reform plan on Thursday that proposed ending much of the tax on foreign profits, making it easier for bring their 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.

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

The tech giant, rated Aa1/AA+, approached the market with fixed-rate tranches with two, three, 10 and 30-year maturities.

It also announced five and seven-year bonds with longer maturity dates of January 13 2023 and 2025.

The bonds are earmarked to help Apple fund its ambitious US$300bn shareholder return program.

The company has now completed almost US$234bn - or 78% - of the program, including US$166bn in share repurchases, Maestri said.

Initial price guidance was respectively set at US Treasuries plus 35bp area, 45bp area, 55bp area, 75bp area, 87.5bp area and 112.5bp area.

At those levels, Apple would be paying up a new issue premium of around 20bp relative to outstanding bonds.

The company’s two 30-year bonds issued this year, the 4.250% February 2047s and its 3.750% September 2047s, have been trading around 20bp-30bp tighter than where they priced.

Investors are hopeful that the deal won’t price on the screws, after seeing price progression of only 5bp on JP Morgan Chase’s 30-year bonds Friday.

That deal priced at T+115bp, leaving bond buyers with an 8bp NIC to outstanding bonds.

“(Apple) might only be able to shave half of its concession away,” Shoup said.

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


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