Apple Inc. is preparing a second US$17 billion bond offering to finance the company's expanded stock buyback program. According to The Financial Times of London, Apple is considering tapping European bond markets for the offering in order to diversify its investor base.
Apple announced it was expanding its stock buyback program from $60 billion to $90 billion on April 23rd, the same day it announced results for the March quarter. The company has to finance its buyback by issuing debt, even though it has some $150 billion in cash because most of that cash—roughly $130 billion—is overseas.
For Apple to buy back shares of its stock, it must do so in the U.S., where those shares are traded. If the company were to bring money in from overseas, it would have to pay 35 percent in taxes on that money, something almost every major U.S. corporation avoids whenever possible.
$17 billion is a lot for any entity to raise that isn't a government. In fact, as noted by The Financial Times, Apple's first $17 billion bond offering in 2012 was the largest in corporate history until Verizon upped the ante with a $49 billion bond offering. Big Red used that money to finance its $130 billion purchase the 45 percent of Verizon Wireless it didn't already own.
Back to Apple, the world's most valuable company has a Double A credit rating, entitling it to offer even bond offerings of this size at favorable rates. That's part of what makes it cheaper for Apple to borrow money than to repatriate money from offshore. That said, Apple is likely to offer rates slightly higher than the U.S. government.
Shares of $AAPL ended the day higher at $594.09, up $22.15 (+3.87 percent), on very heavy volume of 23.9 million shares trading hands.
*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.