Immediate measures to ensure that companies continue to have access to finance during the corona virus crisis have effectively provided Apple with cheap loans to fund share buybacks and dividend payments, a new report said today.
Government support allowed Apple to borrow money on the bond market at the lowest interest rates it had paid in seven years …
background
Although Apple is an extremely cash-rich company, much of that money is earned outside of the U.S., and it would have to pay high tax rates to repatriate the money. For this reason, it makes sense for the company to borrow money for spending in the United States.
Apple borrows money from time to time by selling bonds – a promise to repay money at a fixed rate at a fixed time in the future, between one year and thirty years. For example, $ 7 billion was borrowed last September.
The company’s high creditworthiness means that it can offer very low returns on these bonds because the default risk is close to zero. Thanks to immediate government measures, the company was now able to achieve even lower returns than usual.
Emergency measures
The government has implemented two immediate measures to maintain credit flow to companies during the crisis Reuters Reports.
The Fed cut interest rates to almost zero in March, saying it would act as a last resort buyer in the investment-grade corporate bond market to provide companies with liquidity constraints access to capital markets that are affected by the economic consequences of the Pandemic are affected.
While the Federal Reserve has not yet bought a single corporate bond, the intervention has fueled record emissions from companies in need of funding, such as Boeing, Marriott International and Ford.
Politics has also enabled financially strong companies like Apple, which had just over $ 40 billion in cash at the end of March, to lower their cost of capital for the benefit of shareholders.
‘Buyers of last resort’ means that the Federal Reserve does so when investors don’t buy the bonds. Since Apple can be sure of selling all of its bonds, it can offer an even lower return than usual. All bonds were actually bought by investors.
Reuters reports that Apple has just sold $ 8.5 billion in bonds at extremely low interest rates.
The technology company raised $ 8.5 billion by selling four different bonds with terms between three and 30 years. Refinitiv IFR said the company sold a $ 2 billion three-year bond and a $ 2.25 billion five-year bond with coupons of 0.75% and 1.125%, respectively. These are the lowest interest rates the company has paid on bonds with such a maturity since 2013.
The coupons for Apple’s 10-year and 30-year bonds were also the lowest the company has paid in recent years, according to refinitive data.
The funds will be used for general corporate purposes, including share buybacks and dividend payments, Apple said in an approval application. In the six months to March 28, Apple spent $ 38.5 billion on buying back its shares.
Apple announced last week’s call for profits to increase dividends and spend more on share buybacks.
Apple’s board of directors has approved a cash dividend of $ 0.82 per share of the company’s common stock, an increase of 6 percent. The dividend is payable on May 14, 2020 to shareholders registered at the close of business on May 11, 2020. The Board of Directors has also approved a $ 50 billion increase in existing share buyback program.
