Gleeful Apple and Microsoft bathe in bathfuls of debt

Getting down 'n' dirty to protect their cash stashes

Tech giants have discovered an ingenious way to borrow money – assume debts nearly paid for by the lenders.

Apple is reported to have raised 1.25bn in Swiss francs ($1.19bn) from two bonds that will mature in 2024 and 2030 with rates of 0.25 and 0.7 per cent.

That means Apple will pay back almost zero interest to the bond’s owners.

It’s Apple’s first foray into Swiss bonds and follows a similar, first purchase of euro bonds in November last year.

Apple also raised €2.8bn ($3.5bn) from bonds that mature in eight and 12 years, at interest rates of 1.1 and 1.7 per cent. Meanwhile, earlier this week Microsoft took out what’s claimed to be the largest package of loans in its history: $10.75bn.

It raised money by selling debt to a range of investors with a 10-year bond priced at 2.724 per cent.

Microsoft isn’t short of cash – it sits on a $92bn in cash. Similarly, Apple isn’t rubbing the pennies together: it sits on a pile of $155.2bn in cash and securities.

So the question is, why would either firm bother taking on debt? Both are taking advantage of low interest rates to get extra cash. Borrowed cash could help Microsoft while it loses millions of dollars in sales of Windows and Office products during its transition to lower-revenue cloud services. By turning to Switzerland, Apple is taking advantage of incredibly low interest rates and the fact that yields on Swiss francs are falling.

The Swiss National Bank uncoupled the value of its franc from the euro in January, which has suffered thanks to market worries over the EU and Greece. Since then, the value of the Swiss franc has climbed.

Investors are piling into franc-denominated debt, which is pushing yields on Swiss government bonds to below zero per cent – rates where lenders are almost paying debtors to take their money. Bloomberg recorded a negative yield of -0.26 per cent for 10-year Swiss government bonds on 26 January. At the time of writing that yield had only just climbed back to 0.0 per cent.

Corporate bonds are usually linked to the price of government bonds.

The payoff for Apple is threefold: not only is it getting cheap debt, it’s using the loan to buy up shares in Apple and pay dividends to shareholders.

Buying shares increases the value of the Apple holding, while borrowing to pay shareholders preserves the value of Apple’s stock and its cash pile. ®

Sponsored: Practical tips for Office 365 tenant-to-tenant migration


Biting the hand that feeds IT © 1998–2020