Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Apple, Inc. Is Now Approaching $100 Billion in Debt

By Evan Niu, CFA - Updated Oct 29, 2018 at 2:51PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

That's a lot of paper.

Just days after Apple's ( AAPL -0.70% ) earnings release last week, the company raised a cool $10 billion in debt. Like prior bond sales, this one consisted of numerous tranches with maturities of up to 30 years, and included both fixed-rate notes as well as some floaters. There wasn't really much that was notable about the bond offering itself; it's comparable to the paper that Apple sells every year.

Principal

Fixed or Floating

Rate

Maturity

$500 million

Floating

3-month LIBOR plus 8 basis points

2019

$500 million

Floating

3-month LIBOR plus 20 basis points

2020

$1 billion

Floating

3-month LIBOR plus 50 basis points

2022

$500 million

Fixed

1.55%

2019

$1 billion

Fixed

1.9%

2020

$1.5 billion

Fixed

2.5%

2022

$1.75 billion

Fixed

3%

2024

$2.25 billion

Fixed

3.35%

2027

$1 billion

Fixed

4.25%

2047

Data source: Prospectus.

However, it was done a bit earlier the usual this time around, and Apple is now approaching $100 billion in debt.

It's the time of the season

Typically, Apple conducts these bond offerings shortly after providing updates to its capital return program, which is usually alongside its April earnings release. They usually occur in April or May. But Apple needed to sell the bonds slightly earlier this year for a few interrelated reasons.

Exterior of Apple Store in Milan, Italy

Image source: Apple.

Apple entered into its ninth accelerated share repurchase program last quarter, and total share repurchases were $11 billion. That took a big bite out of Apple's domestic cash position, and the company exited the quarter with $15.9 billion in domestic cash. That's the low end of Apple's comfort zone; Apple usually keeps its domestic cash in the range of $15 billion to $25 billion for operational and strategic needs.

Note how Apple's domestic cash has dwindled in recent years due to aggressive capital return activity. (This chart does not reflect the recent bond offering.)

Chart showing decreasing domestic cash position

Data source: SEC filings. Chart by author. Calendar quarters shown.

The company simply blew through its domestic dollars a little faster than usual this year with share repurchases.

$100 billion and counting

Since debt largely funds Apple's massive capital returns, the debt load that it has taken on over the past five years is commensurately large. At the end of 2016, Apple had $87.5 billion in long-term debt (including the current portion) and commercial paper, which is just short-term unsecured debt. The recent $10 billion bond offering will now bring that figure up to around $97.5 billion.

The offering was still able to fetch investment-grade credit ratings, but it goes without saying that the more debt that Apple takes on over time, the worse its credit rating profile becomes. Meanwhile, there's been a lot of talk about a potential tax repatriation holiday from the Trump administration. If Apple is able to bring home a meaningful chunk of the $230.2 billion that now sits overseas, it could theoretically extinguish some of that debt and strengthen the balance sheet. That could effectively give Apple a few more years to continue its debt-funded capital return strategy.

Until then, Apple will just have to keep selling paper.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$163.61 (-0.70%) $-1.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
634%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.