Apple formally launched a $17 billion offering across six tranches under an AA+/AA1 profile to establish the largest corporate-bond offering on record as it embarks on a plan to return $100 billion to shareholders through 2015, sources said. However, the issuer is on track to pay more for longer-term funds than other high-profile borrowers in recent sessions.
With press reports suggesting an order book at least three times the offering amount ahead of launch, spreads were set at the firm end of guidance and 15-20 bps through initial whispers, including at L+5 for $1 billion of three-year, floating-rate notes and at T+20 for $1.5 billion of three-year, fixed-rate notes; at L+25 for $2 billion of five-year, floating-rate notes and at T+40 for $4 billion of five-year, fixed-rate notes; at T+75 for $5.5 billion of 10-year, fixed-rate notes; and at T+100 for $3 billion of 30-year, fixed-rate bonds.
Apple is on track to establish a yield curve at initial fixed-rate reoffers near 0.5% for three-year notes, 1.07% for five-year notes, 2.42% for 10-year notes, and 3.88% for the long bonds.
The cash-rich company should secure the lowest-ever funding costs for a three-year maturity, tucking in under the 0.58% reoffer for Unilever Capital (A+/A1) 0.45% notes due 2015 inked last July at T+27, or 0.58%.
But longer tranches appear to be offered more generously relative to recent new issues. Under a lower AA-/Aa3 profile, Colgate-Palmolive yesterday offered five-year 0.9% notes at T+32, or 1%, and 2.1% 10-year notes at T+60, or 2.27%. Nike (A+/A1) placed 3.625% 30-year bonds on April 23 at T+75, or 3.64%.
After S&P and Moody’s last week assigned corporate credit ratings just shy of triple-A status, Fitch yesterday articulated a rationale for a relatively steep yield curve for the credit. While Fitch didn’t assign a rating on Apple prior to launch, it noted that “such a rating would likely fall in the high single ‘A’ rating category,” according to an April 29 report.
“Consumer product companies such as Sony, Nokia, and Motorola Mobility have proven the risks related to ever-changing consumer tastes, low switching costs, and a highly competitive environment,” Fitch analysts noted. “Each has historically had a dominant market position and strong financial metrics, only to falter over a relatively short period of time.”
“Fitch’s ratings ultimately hinge on the volatility of a business model, since the typical bond investment period can extend beyond several product cycles, while also considering financial metrics and liquidity,” analysts noted. “For ratings in the ‘AA’ category, we would insist on higher visibility and a longer time horizon regarding the sustainability of a company’s business model.”
When excluding volume related to a one-year tranche issued by Roche Holding in 2009, AbbVie last year inked the biggest bond deal on record at $14.7 billion to facilitate its spin-off from Abbott Laboratories. Of the 10 largest deals placed last year, only a $6.175 billion deal inked by Intel on Dec. 4 directly backed share repurchases, LCD data show.
After facilitating investor calls yesterday, Goldman Sachs and Deutsche Bank will act as bookrunners for today’s offering. Each of the fixed-rate issues carries a make-whole call provision. – John Atkins