Coming to market for the first time in two years, Apple (NASDAQ: AAPL) has issued $7 billion of debt including five 3-year bond notes and one 30-year note.
Even though the tech behemoth already has about $200 billion in cash and investment securities, it is taking advantage of the current lower rates of interest and can then use the money to refinance existing debt for this year and the next.
According to a Bloomberg report: "With the 30-year Treasury at record lows, many companies have been able to borrow more cheaply for much longer. Apple will pay around 2.99% interest on its new 30-year bonds, compared with the 3.45% it's paying on three-decade bonds it sold in 2015. On a $1.5 billion issue, that equates to savings of nearly $7 million of interest annually, or more than $200 million over the course of three decades."
"Today's debt sale could help Apple refinance roughly $2 billion of debt that's scheduled to mature this year, in addition to much of the $10 billion it has coming due in 2020," the report further stated.
There is also a lot of demand for high quality debt globally right now, especially given that there is over $17 trillion of negative yielding debt around the world.
Additionally, we are currently in a late stage economic cycle phase. That is, many investors are worried about an impending recession, in which it would be harder to raise cash and maintain liquidity. By taking advantage of the lower rates and robust economic conditions, Apple is keeping itself well-padded for the storm that is supposedly to come. This is particularly pertinent given that we have had the longest boom cycle there has been in a while, allowing Apple to capitalize upon filled coffers.
The debt wave may also come as a product of Apple engaging in share repurchases, having spent $122 billion on stock buybacks over the last 18 months, including $17 billion in the last quarter. Buying back stocks increases the value of the remaining shares in circulation and also helps a company pay less dividends due to the lesser amount of stocks in the market.
Some may argue that Apple could have issued the debt at a cheaper rate given that the market has priced in more cuts for September. However, given the seasonality of debt-issuing, raising capital this early in September allows Apple to have an edge on other companies looking to dole out high grade debt. Though this move may set a precedent for other corporates in this sector, there is no doubt Apple will have had a significant first mover advantage.