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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.
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Soooo, marking all that ishit sold as soon as it's manufactured might not be a good idea. Perhaps they can call them igay bonds and print them on rainbow colored paper.
they should build a stadium or arena or racetrack or something
And get accused of not building it?
No way in hell!
Excellent. More high quality collateral for the grist mill. We are cookin' with gas!
BUY GAY BONDS!
They're not bonds... they're bondages you thilly thavage.
Icahn: hmm Apple looks just like Simplicity Pattern.
Debt equals death.
Apple is also building a giant Taj Mahal headquarters in San Jose. Whenever a company builds a giant HQ it fails. Remember RCA?
http://www.businessinsider.com/new-hqs-for-apple-google-amazon-and-faceb...
OT-CNBS headline this morning:
I was wrong—it’s still a bull market: Gartmansame stragedy as IBM ...same results comming soon
Ever since they replaced Steve Jobs with a sweaty nervous gay guy with no ideas I'd say the money made by actual technology or innovation may have peaked. Time for some creative accounting.
Steve jobs was just there at the right time, consumerism fueled by expanding easy credit, not that he was anything special.
Now the demise of Apple will be blamed on a gay guy and demise of US on a black gay.
BUT, now you understand why Cook came out last week.
he needed to play the Gay Card....and he did.
Do you suppose the black gay guy will come out of the muslim closet?
Lord, please make the next US president a straight White, blonde, male of Northern European descent (not even a Caucasian, as they might blame the Chechens/Georgians etc) so the Kenyan, Muslim, Indonesians will no longer be blamed for the fuck ups of US Citizens.
And please Lord, dont make it a woman either or else it will all be blamed on the male bashing leftish lesbos.
Please Lord, keep it real.
Maybe the Putinmania will also fade away once the black sissy male leaves the White Dude's House.
No Irish, either. Or Italians.
and don't forget the
Methodists!
I suggest a Jew--they get blamed for everything so everybody wins!
But you see, that's the clever little secret.... Wrap yourself in the blanket of 'blame', trot out the latest weekly nahtzee story in the mainstream press to make sure the 'victim' charade stays firmly ensconced in the mind of the dumb Goy, and then proceed to carry on with $$$Fleecing and robbing that same Goy of his freedom. It's worked like a charm so far...
I agree that Steve Job's timing was fortuitous, but his 'itunes' idea and products were somewhat genius.
The genius was getting people to live behind Apple's paygate willingly. The iPod was a major step up from everything else available at the time - but other digital players were available before the iPod.
As a company like Apple, you really have no need for U.S. Dollars, Other currencies would prove more useful during periods of expansion into new markets, The USA is a saturated market and like all locust swarm corporations, Apple will move from nation to nation in search of profit.
... because when you know the income is stagnating, might as well max out on the loans and credit cards and party like its 1999, or any year you fancy.
Cant you just send me the cash?
I stand in the presence of brilliance.
Please re-post this comment so I can upvote it again !!!!!!!!!!!!!!!!!!!!!
Swapping debt for stocks seems smart to me. In the face of an inflation explosion, debt is the place to be. Ask Hugo Stinnis.
Provided you have enough cashflow to service the debt.
Cash flow multiplies with inflation too. Earn more dollars for same amount of production; pay back bonds with cheaper dollars. And inflation will explode. All this QE and the fudging of the numbers guarantees it. It's just a question of when they're going to let the spring break.
...it is corporations themselves, buying back roughly the same $85 billion in stock as the Fed did every month in 2013.
what a co-ink-a-dink /s
i think it's actually much more than 85$bn
Get a Ford 0% for 72 months. Sales must be stellar this quarter.
how convenient, I was just reading this this morning
recent insider transactions for AAPL
The problem with Apple is it has lost it's magician. If you look at Apple products over history they are a simple illusionary magic trick. Designed to dazzle and dismay, just dont look too carefully or you see it's all a marketing trick. Don't get me wrong I like some of their products, and Steve Jobs for all the loony crack pot he was, he did have a knack for producing needs people didnt even know they had. He was also ridiciously anal and therefore he always produced a well finished, shiny, and cool product. That was the magic of Jobs and why Apple always dies without him at the helm.
There is no way Steve would have let the 6 plus onto the market - He was fanatical about testing products the way consumers use them (ie putting them in their pockets!). It was his marketing, perfectionism that allowed Apple to get away with it's protectionism and issolation. A little bit like the soup nazi from Seinfield. Now the soup is just regular soup without Steve Jobs "magic" consumers and retailers wont tolerate their "only works on Apple - our way" attitude and issolation.
The arrogance of issolation only works if you have really fucking great soup.
Apple's stock has doubled since Steve Jobs' death, but don't let the facts get in the way of this narrative. I mean, you are carrying a very powerful computer in your hand that doubles as a phone. People like Apple's software better than the competition, it's as simple as that. Samsung is getting crushed by Apple, just check out their earning this past quarter.
"Samsung is getting crushed by Apple" Lol what you meant to see was "Apple getting crushed in my jeans pocket"
Apple stock went up after they booted him from his own company.....there is a lag between the magic wearing off and the share price plummeting. I agree they are gaining on Samsung temporarily, but take note of how retailers aren't biting at their payments option. Steve left a legacy of innovation in the pipeline but the inept board are already fucking it up. you'd do well to keep a closer eye on Windows phones.
And don't forget that no operating system worldwide can match iOS - Apple pretty much has the world on lockdown with their mobile operating system.
"He was also ridiciously anal "
Ha ha. So is the current gay guy.
it's called using the cash to buyback stock and lowering the number of outstanding shares which makes your shares worth more and gives you large dividend payments, ZH of course knows all of this. Apple spent $17B buying stock this past quarter. So the $9B is not a problem, it makes total sense, but I digress....because it's not hard to stop buybacks at any time.
The dividends will be greater than $26B you think?
Buybacks are like communism. In theory you are right and they should work........but they never do.
If I own shares participating in a buy back I run for the hills
"Peak Apple", according to Karl Denninger: http://market-ticker.org/akcs-www?post=229549
Money has become so cheap to borrow that many people are now arguing that you must take it even if you don't know what to do with it. It is hard to imagine how much this is distorting the economy, markets, and reality in general. A total disconnect between life on main street and the financial world is occurring and it is putting the economy in a very dangerous place.
It is often hard to determine what is true, but a report on Bloomberg that 32 Trillion dollars in funds were held in offshore accounts around the world made me shutter. How safe is this money, and what exactly is it doing? Can you say Cyprus? More concerning the toxic consequences of cheap money in the article below.
http://brucewilds.blogspot.com/2013/05/cheap-money-more-and-more-and-more.html
Cook can be busy as the MC at the gay-pride parades next year and blow millions on Apple floats.
One way to dump Apple's cash.
I didn't know millions attended the Apple float. Cook is going to be one tired cocksucker!
For all of you who already get this, ok, let me have your best "Duh! Way to go Einstein!" But for me it's a revelation so let me share it anyway.
"... 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…"Why?
Would they do this to drive up the stock market and prevent an economic collapse? That's not how corporate boards think. They're doing this out of greed or fear. Greed or fear. Not their job to save the system. Another reason is to drive up the price so the corporate officers and primary shareholders can grab the money and run. Which is happening. But why now, why across the board? What signal is producing this broad spectrum reaction? Here's a clue: "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),…"
So what do Icahn and his ilk do? They buy, dismember and plunder corporations. Especially corporations with low debt loads and low price/earnings ratios. So what he is doing now with Apple amounts to blackmail. Buy back my stock or I'll use it to do you!
With huge pools of cash sloshing around, few real-economy profit opportunities and the vultures circling, the corporations are loading up on debt and driving up share prices to defend themselves.
As Tyler is fond of saying, this won't end well.
Net cash "slumped" to 120 billion! Zerohedge you really make me laugh sometimes.
When the war breaks Apple's patents aren't going to be worth a hill of beans.
Why don't they just issue bonds to their offshore company? Or does that violate some tax rulings?