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Apple Just Tapped the Debt Market to Raise $14 Billion

By Evan Niu, CFA - Feb 3, 2021 at 10:00AM

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The Cupertino tech juggernaut conducts its first bond offering in six months.

It's been about six months since the last time Apple (AAPL 4.01%) tapped the debt market to raise some cash. The company sold $5.5 billion worth of paper last August to take advantage of the favorable interest rate environment, which was a few months after issuing $8.5 billion in bonds in May. After reporting its first $100 billion quarter last week, Apple has decided to sell a fresh batch of bonds.

Here's what investors need to know.

iPhone 12 Pro in blue

Image source: Apple.

Raising $14 billion

Earlier this week, Apple priced a new bond offering consisting of 6 tranches to raise $14 billion, its biggest debt offering in years. While the Mac maker used to sometimes include floating rate notes, it prefers fixed rate bonds nowadays in order to lock in the low borrowing costs, particularly for the bonds that mature in several decades.

Maturity

Interest Rate

Principal

February 2026

0.7%

$2.5 billion

February 2028

1.2%

$2.5 billion

February 2031

1.65%

$2.75 billion

February 2041

2.375%

$1.5 billion

February 2051

2.65%

$3 billion

February 2061

2.8%

$1.75 billion

 

Total

$14 billion

Data source: SEC filing.

After factoring in underwriting discounts and other transaction expenses, the Cupertino tech giant expects net proceeds to be roughly $13.9 billion. Apple says that it intends to use the proceeds for general corporate purposes, which could include capital returns like funding its share repurchase program.

$83.5 billion to go

This should all be familiar for longtime Apple investors, as the company has been utilizing debt as a core part of its capital allocation strategy for nearly a decade. A couple of years ago, CFO Luca Maestri set out a "net cash neutral" goal, where gross cash is approximately equal to the long-term debt load, for the company. That would still leave Apple with plenty of cash to operate with while improving its capital structure. Apple has been working on that ever since, and the company has nearly cut its net cash in half over that time.

Chart showing Apple's net cash declining over time

Data source: SEC filings and author's calculations. Chart by author. Fiscal quarters shown.

However, that's easier said than done since Apple generates copious amounts of cash. The company's net cash position increased by $4.1 billion sequentially last quarter to $83.5 billion. That was after spending $24 billion in open market buybacks. Note that bond offerings have no significant impact on Apple's net cash position initially, since the deal adds roughly the same amount of an asset (cash) and liability (debt) to the balance sheet.

Apple has now repurchased $402.7 billion in stock since it initiated its capital return program back in 2012, an astounding sum. With $83.5 billion in net cash at the end of 2020, Apple still has more work ahead of it to reach its target.

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