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[NEW YORK] Apple waded into the bond market for the third time in as many years on Monday, raising a larger-than-expected US$6.5bn as part of a US$130bn programme to return capital to shareholders.
The deal was just over half the US$12bn Apple issued in April 2014, and much smaller than its US$17bn debut in 2013. At US$20bn, the order book at its peak was about half that seen last time out.
Observers saw the deal as a success, saying the bigger new issue concessions reflected more volatile Treasuries rather than investor weariness with Apple's shareholder-friendly ways. "The bigger new issue concessions at the long end are completely a function of the market," said one syndicate manager not directly involved with the transaction. "The US$6.5bn deal was US$1.5bn bigger than expected - and at concessions that were flat to, say, 8bp across the tranches. (That) is a nice outcome for them, when you compare it to the 10-15bp concessions borrowers were paying at the beginning of January." Deutsche Bank and Goldman Sachs were once again Apple's bookrunners of choice.
Over the past three years, Apple has become an annual visitor to the global debt capital markets mainly because it is cheaper for the company to borrow to fund dividends and share buybacks than to pay taxes by using its US$178bn offshore cash pile instead.
In April last year Apple said it wanted to return about US$130bn to shareholders by the end of this year. RBC Capital Markets analysts said the company might increase that to more than US$200bn over the next three years.
Monday's dollar deal consisted of a US$1.25bn five-year fixed-rate tranche, a US$500m five-year floating rate note, a US$1.25bn seven-year, a US$1.5bn 10-year and a US$2bn 30-year.
All but the 10-year priced about 12bp tighter than initial price thoughts and at the tight end of guidance: 42bp on the five-year fixed; 67bp on the seven; and 125bp on the 30.
The 10-year priced at 85bp, the same level as the wider end of guidance, but 10bp tighter than whispered levels.
Apple paid nothing in the way of new issue concession on the five-year pieces and only about 2bp on the seven-year. But it offered slightly more on the longer tranches, at about 5bp on the 10 and around 8bp on the 30. "We participated and preferred the seven, 10 and 30-year bonds, seeing the new issue concession settle in at around 5-10bp," said Matthew Duch, a senior portfolio manager at Calvert Investments. "The five-year was (priced at) fair value," he told IFR.
Apple told investors that the deal would be around US$5bn and had room to grow.
According to one buyside account, Apple wanted to limit the upsize potential because it also wants to issue in non-dollar currencies.
It plans to raise about the same amount this year as it did in 2014, according to the investor, which was US$12bn in dollars and 2.8bn in euros.
The tech giant would be able to lock in much better pricing in euros, even when swapped back into dollars.
Investors asked for more spread on its new 2025s and 2045s because that's where Treasury volatility hits hardest - as they discovered with Apple's first deal in 2013. "In 2013, when they first came to market, their newly issued 2023s were trading at something like an US$88.00 price a few months after pricing," said a head of syndicate away from the deal. "And that was purely because of the taper tantrum." Ultimate proof of success for the new issue will come in aftermarket trading, though things were looking good on Monday afternoon in the grey.
Just before pricing, Apple's bonds were trading slightly tighter in the grey market, with the five-year quoted at 41bp bid/38bp offered; the seven at 67bp/64bp; the 10 at 82bp/80bp; and the 30-year at 123bp/121bp.
Apple can take some comfort in the knowledge that the wider new issue concessions at the long end were offset by the extraordinary tightening of Treasury yields so far this year.