US Dollar Bond: Apple’s US$12bn seven-tranche bond

IFR Review of the Year 2014
3 min read

When it came to convincing fund managers to buy notes issued for the sole purpose of placating equity holders, no one was a smoother talker than Apple.

In May, the tech giant applied the marketing magic for which it is famous to the bond market when it managed to create an aura of rarity value around a US$12bn jumbo offering. That was some feat, considering it had issued US$17bn the year before and some analysts believed Apple could issue a further US$50bn of debt to part-finance its US$90bn share buyback programme.

There was also a significant number of investors that had been hurt by the performance of the US$17bn debut in 2013 – an offering that was priced to perfection but fell victim to “taper tantrum” rate volatility hitting the market almost immediately thereafter.

Nevertheless, Apple whipped up a bond-buying frenzy for its new seven-tranche deal, to the point where its secondary bonds rallied by an extraordinary 7bp–10bp while it was marketing its new offering.

It eventually garnered a US$41bn book, pulled in pricing from initial thoughts by 10bp–20bp and priced on top of secondary levels.

“They convinced investors to buy bonds priced right on the screws. Again. It’s incredible,” said one portfolio manager at the time.

The seamless deal execution was the result of a well thought-out plan of attack by Apple and its leads Goldman Sachs and Deutsche Bank, to manage expectations on size and frequency of issuance.

“The thing that puts Apple’s deal apart from other well-placed large bond deals of the year is the strategy that went into setting the scene for the transaction, before the deal’s marketing process began,” said Jonny Fine, a partner at Goldman Sachs in charge of investment-grade syndicate.

The plan started a week before the deal surfaced. Apple made a statement while reporting its first-quarter earnings that it was looking to do another debt offering, but one that while similar in size to its 2013 trade would not necessarily be only in dollars.

To get the bookbuilding process off at a furious pace, leads told investors to think of an US$8bn–$10bn size. The smartest execution move of all was the decision to cap the size of its 30-year tranche to US$1bn, a move that substantially increased the pricing tension in the book.

Orders poured in and secondary spreads of Apple started to rally, to the point where its outstanding 2043s traded inside their original 100bp new issue spread for the first time all year.

Like its first deal, aftermarket performance was picture-perfect for the issuer, with the tranches tightening from 1bp–5bp in the aftermarket.

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US Dollar Bond 2014