This Is How Much Apple's Debt Will Cost

Yesterday, Apple (NASDAQ: AAPL  ) tapped the debt markets for the first time in its history. The bold move comes as part of the company's ambitious capital return program, where it plans to return $100 billion in cash to shareholders through 2015.

Now that the bond offering has been completed, investors can sift through the figures to contemplate how much that paper will cost the iPhone maker from here on out.

Type

Due

Principal

Yield

3-year fixed

May 2016

$1.5 billion

0.51%

3-year floating

May 2016

$1 billion

0.33%

5-year fixed

May 2018

$4 billion

1.08%

5-year floating

May 2018

$2 billion

0.53%

10-year fixed

May 2023

$5.5 billion

2.42%

30-year fixed

May 2043

$3 billion

3.88%

       

 

Total

$17 billion

1.85%*

Source: SEC filings. *Weighted average.

The floaters are tied to three-month LIBOR, which is currently around 0.28%, and will reset quarterly. The three-year floaters carry a 5 basis point spread relative to that benchmark, while the five-year floaters offer 25 basis points above it.

That 1.85% weighted average cost of debt that Apple is facing is far less than the cost of equity it's implicitly on the hook for right now. That also translates into a little over $300 million in annual interest expense, which shouldn't hurt the bottom line much since Apple's net income over the past year has been nearly $40 billion. When including the tax deduction, Apple's after-tax interest expense is more like $195 million -- chump change for the Mac maker.

It seems appropriate to revisit some of the recent calculations I've made now that we have finalized digits. Using the capital asset pricing model, I now peg Apple's cost of equity at 8.9%. Before yesterday, Apple's weighted average cost of capital, or WACC, was exactly its cost of equity since it was debt free.

Apple's market cap has increased since I last addressed this, and now sits at $415 billion. Adding in the $17 billion in debt and using the above rates, Apple's WACC is now 8.6%. That's just a 30 basis point reduction in the company's WACC, which is in line with the relatively modest amount of debt Apple raised relative to what it could have offered. The order book for Apple bonds reportedly reached as high as $50 billion, so it could have easily raised more if it wanted to, which would have further reduced its WACC.

That's not to say that $17 billion is a paltry amount. In fact, it represents the largest non-financial corporate bond offering ever. Good thing it came cheap.

There is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


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  • Report this Comment On May 01, 2013, at 11:20 PM, dwilh51183 wrote:

    SO THEY MAKE THAT MUCH MONEY IN 1 MONTH,SO IT WAS A GOOD MOVE ON AAPL'S PART TO BORROW CASH AT SUPER LOW RATES AND PAY THE INTEREST .AAPL WILL PAY THAT OFF WHEN THEY RELEASE AN IPHONE UNDER $350.00 FOR CHINA MOBILE, AND THE IPHONE 5-S WILL HAVE MONSTER SALES BECAUSE CNBC BASHED THEM SO BAD THIS PAST QUARTER THAT MANY PEOPLE WAITED TO UPGRADE BECAUSE OF THE MAPS PROBLEM...BUT THAT WILL BE ALL FIXED WHEN AAPL RELEASES THE COOLEST PHONE EVER IN 1-2 MONTHS...THE IPHONE PRO

  • Report this Comment On May 01, 2013, at 11:21 PM, dwilh51183 wrote:

    ANYONE WHO BUYS A SAMSUNG PHONE IS GETTING A PIECE OF JUNK. I DON'T CARE ABOUT THEIR FEATURES, BUT EVERY TIME SOMEONE CALLS ME USING A SAMSUNG PHONE I ALWAYS KNOW! THEY ARE JUNK.A SAMSUNG PHONE OWNER'S VOICE VIBRATES AND SKIPS AND YOU CAN'T UNDERSTAND WHAT THEY'RE SAYING . BOTTOM LINE, CHEAP PHONES ARE NOT WORTH HAVING IF YOU CAN'T UNDERSTAND THE CONVERSATION. TRUST ME , IT CUTS OUT WHEN THEY CALL FROM THEIR CAR AND GO UNDER BRIDGES OR DOWN HILLS. THEN THEY CALL YOU BACK AND SAY..."I MUST OF LOST YOU" BUY AN AAPL IPHONE---> GUARANTEED QUALITY AND YOU CAN TRIPLE YOUR MONEY ON IT WHEN YOU SELL IT.

  • Report this Comment On May 03, 2013, at 8:43 PM, pennycounter wrote:

    If my numbers are correct, Apple will pay $69M every quarter in interest for the first 3 year of the loan, and that will reduce the earnings per share by 0.0066 cents. Would the market notice that?

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