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Why Apple Is Preparing To Issue Even More Bonds

Three weeks ago, Carl Icahn did what he does best (and lately, pretty much the only thing he does): urged Apple to buy some more stock back from him, when he said that he sees AAPL stock hitting $200/share (or well over $1 trillion in market cap), even though he himself has no plans to buy more stock. Nothing surprising about that.

There was just one problem: as we highlighted in Apple's earnings release from October 20, despite another impressive earnings quarter, the company had not only burned through over $9 billion in global cash in the quarter...


... but its net cash, when adjusting for total debt and the company's recent issuance of commercial paper, slumped to the lowest since early 2012.


Worse, as its recent 10-K confirmed, AAPL's domestic cash - the amount of cash available for such corporate transactions as dividends and buybacks - had dropped to just $18.1 billion (and that is including the several billion in commercial paper issued in fiscal Q4), the lowest domestic cash hoard since March 2010, a time when AAPL's offshore cash was a tiny $24 billion compared to the near record $137 billion last quarter!


So knowing full well that a buyback a day keep the Icahnator away, AAPL, urgently looking to refill its domestic cash since its offshore cash remains untouchable (absent being taxed on its repatriation), did the only thing it could do: prepare to issue more bonds, which is what we forecast would happen a few weeks ago, and what the WSJ overnight confirmed is already in progress.

Apple Inc. has its eye on the bond markets again, lining up a potential new deal that would likely build on a track record of blockbuster transactions.


Deutsche Bank and Goldman Sachs Inc. are arranging a call for the firm with investors Monday, and a deal, possibly at least partly in euros, could come as soon as this week, according to a person familiar with the matter. The iPhone maker has never issued debt in currencies other than the dollar before.

This will be AAPL's third official bond issuance, following an inaugural record $17 billion issue in 2013, and a smaller, $12 billion deal in April.

WSJ also reports that analysts at research firm CreditSights in April said Apple may issue as much as $5 billion in nondollar bonds this year. Actually, considering the pace of domestic cash burn, and the already creeping leverage, AAPL will likely see to issue at least $15 billion (market permitting), unless it wants to access the market on a monthly if not weekly basis going forward.

Then again, that should hardly be problematic.  Per the WSJ, U.S. firms have ramped up bond sales in Europe this year to take advantage of the region’s record low borrowing costs. U.S. companies have sold €51.5 billion ($64.5 billion) of euro-denominated debt so far this year, the most at this point in the calendar since 2008, Dealogic data show.

But the real punchline is that in October, over $103 billion in Investment Grade bonds were sold according to Bloomberg, the bulk of which went to fund stock buybacks. Wondering who picked up the Fed QE baton? It's not the BOJ, as much as it would like: it is corporations themselves, buying back roughly the same $85 billion in stock as the Fed did every month in 2013. And now Apple is preparing to do its duty to add to the "market" levitation, as the S&P 500 is now one slow Management Buyout, courtesy of ZIRP, FOMO and an epic yield chasing scramble.