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Apple seals $10bn debt finance as borrowings boom

Apple clinched $10bn of debt financing on Thursday as capital market activity remained robust, with Microsoft and AT&T also borrowing hefty amounts from investors this week.

Apple’s latest bond sale follows a bumper start to the year for corporate and bank borrowings, with more than $185bn raised by investment-grade groups in the US, according to Dealogic. This week Microsoft borrowed $17bn in the largest bond offering of 2017, while AT&T sold $10bn of paper.

“The market has been very receptive to the new debt,” said Monica Erickson, a portfolio manager with asset manager DoubleLine. The level of issuance was “beyond what anyone expected”.

New debt has generally advanced in price as investors pour more cash into the asset class. In the past week, $2.7bn flowed into US investment-grade corporate bond funds, lifting year-to-date inflows to $12.4bn, according to Lipper.

Microsoft’s recently issued 2027 notes traded with a yield 78 basis points above a benchmark Treasury on Wednesday, seven basis points below where they were initially issued. Yields fall as bond prices rise.

Investor demand for bonds from Apple was intense. Underwriters, led by Deutsche Bank, Goldman Sachs and JPMorgan, counted orders of more than $36bn for the offering, according to two investors and one banker familiar with the deal. Apple had initially planned to raise between $6bn and $8bn.

Trading volumes are also higher alongside the deluge of debt supply, with a record $38.5bn of corporate bonds changing hands on Tuesday, when Microsoft’s new debt began to trade. Over the past three weeks, volumes have averaged just below $30bn a day, more than 20 per cent above 2016’s daily average.

US companies have issued a huge amount of debt since the turn of the decade, with more than $1tn borrowed each year since 2010. Many companies, including several in the technology sector, have turned to debt markets to finance shareholder returns in an attempt to avoid the tax hit of repatriating cash generated abroad. Apple is flush with cash held overseas.

Goldman Sachs analysts forecast in January that S&P 500 groups would repatriate $200bn of cash held offshore this year, which would “be directed primarily to buybacks”.

Apple holds more than 90 per cent of the $246bn of cash on its balance sheet in foreign subsidiaries, and has become one of the largest issuers of debt since it launched its multibillion-dollar buyback and dividend programme in 2012. The group has since returned about $195bn to shareholders in buybacks and dividends.

The US technology group will use the proceeds from the sale for share buybacks and to fund dividends, as well as for general corporate purposes.

The iPhone maker has issued more than $90bn of debt since 2013, including roughly $25bn last year, according to Dealogic. Analysts at rating agency Moody’s said Thursday’s sale would raise the company’s adjusted debt to more than $100bn.

Apple issued the debt across nine tranches, including three floating rate notes that mature in 2019, 2020 and 2022. The fixed-rate notes span two-year to 30-year maturities.

The new 10-year notes priced 88 basis points above the yield on similarly maturing benchmark Treasuries, or roughly 3.35 per cent. Banks had started marketing the 10-year notes with a yield as much as 110 basis points higher than the Treasury, but tightened pricing as order books grew.

Apple’s 2026 maturing notes, which it sold last year with a yield of 2.48 per cent, traded on Thursday with yields between 3.25 and 3.3 per cent.

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