Apple's $17bn bond sale not such a good deal for investors

Investors in Apple's record $17bn bond offering who didn't hedge their bets have seen millions in value wiped off their investment. Apple 30-year Corporate Bond Price Apple 30-year Corporate Bond Price. Credit: Business Insider/Steven Perlberg, data from Bloomberg The fruity firm sold off the huge amount of debt back in …

[jb99]

"Of course, that's not bad for Apple, "

"Of course, that's not bad for Apple, " except that as the bond price falls the yield goes up proportionally and affects the amount they will have to offer on any future issues. So it might well afffect them indirectly

[Harvey Trowell]

Re: "Of course, that's not bad for Apple, "

On the other hand, I believe the $14bn-worth of those bonds that aren't floating-rate are callable, so they could always buy them all back, say thanks for the $2bn and go down the pub*. Nice work, Mr Oppenheimer.

*Except of course they wouldn't drink at the pub, because of the amount of duty on a pint. Perhaps a cocktail served by a flunky on a superyacht, somewhere off San Fran, in international waters. Mmmm, flunky.

[Anonymous Coward]

Fallen to 92% of value?

So Apple could buy back these bonds and make 8% on the money they just borrowed to give to investors?

[Cliff]

precedent?

Where's your precedent for complicated repackaging of financial liabilities causing trouble for the people who bought them whilst distracted by spurious valuations?

[andreas koch]

@ Cliff - Re: precedent?

Something as old as this:

http://en.wikipedia.org/wiki/South_sea_bubble

[Anonymous Coward]

Financials 101 ..

Ah so, because of an announcement by the Federal Reserve, the market value of *all* bonds decline and Apple is using it's spare cash to boost shareholder value and this is translated by you into investors getting screwed by Apple.

[Harvey Trowell]

Financials 101

You mean the announcement made yesterday is responsible for the drop since day one, two months back, as depicted by the big chart up there? Ok, got it. Thanks prof.

[Anonymous Coward]

Re: Financials 101

Well, how does that chart compare to the 30-year bond market as a whole?

[Anonymous Coward]

Re: Financials 101 ..

"investors getting screwed by Apple."

In my book bondholders are creditors, not investors, but either way, how are they being screwed? They currently stand every chance of being paid the ridiculous coupon that they signed up for.

All that's happened is that those that rushed to the front of the queue have found that the queue behind them was shorter than they envisaged, should they want to sell on.

[Anonymous Coward 101]

My understanding is that the value of >all< bonds in the market has declined recently, because interest rates are believed to be rising. The fall in value does not imply a fall in the perceived credit worthiness of Apple. In other words, there is nothing to report here.

[jonathanb]

There is something to report here, but it has got nothing to do with Apple. It is the fact that the bond bubble is bursting, and it belongs in the financial press, not here.

[Anonymous Coward]

It does seem as if Apple has few ideas other than to repackage Android features. Create crazy shaped computers (new Mac Pro) and just give everything a lick of paint (iOS 7).

They have plenty of money, perhaps they should spend some on research?

[Anonymous Coward]

"They have plenty of money, perhaps they should spend some on research?"

They have! They researched their target market and found fashionists will take the bait. Make something mediocre at best, market it to the brain dead and they will publicise the medicore to their parents. Of course parents of fashionstas are even more dumb than their dna-errors, and run out to purchase the mediocre to try a stave off their impending death/ be part of a crowd.

It's pathetic!

[Steve Davies 3]

Some questions

1) Did Apple do anything shady or underhand with this sale? i.e Will the SEC be sending in the Bloodhounds?

2) Did the people who took up this offer know that the value of investments can go down as well as up?

3) Did other investments of this type fall in value at the same time as Apple's?

If the answers are No, Yes and Yes and then there really isn't anything newsworthy here but hey, this is a victim of the 'lets write a story and slag off Apple brigade'

Why hasn't El-Reg reported this story from the BBC?

http://www.bbc.co.uk/news/technology-22983706

Just for some balance you know?

Now to get down-voted just like Eadon.

[FartingHippo]

"that are getting sc***ed"

That's not even especially fucking rude, for fucking fuck's sake! What the fuck is this? Fucking Kindergarten?

[Anonymous Coward]

Re: "that are getting sc***ed"

This sort of censorship is utterly worthless even when used on words that might cause offense. Everyone knows what it said; who on earth is it meant to fool?

Either write it out in full, or use more polite language. Don't piss about with asterisks.

And "screwed" is an obscenity now? Seriously?

[Danny 14]

Re: "that are getting sc***ed"

scunted?

[Harvey Trowell]

Re: "that are getting sc***ed"

Could be scythed. Bond traders don't like taking a haircut.

[Khaptain]

Re: "that are getting sc***ed"

Strange I didn't read it like that,

I read it the first time as "Fucked over thouroughly", I then read it again but this time read it as "Shit upon"..

That's why I personally thought the asterisks were necessary

[Cliff]

Re: "that are getting sc***ed"

You get +1 for scunted, reminds me of the superflattering 'Twunt', when someone is being a bit of one and a bit of the other. A Top Gear presenter, for instance.

[Tom 7]

Re: "that are getting sc***ed"

Thanks Danny 14 - that word will be added to my own version of Rogers Profanisaurus!

[Eric Olson]

Bad for traders, but still okay for investors

I think a central misunderstanding by arm-chair market participants is how bonds work. Yes, just like stock, they are commodity that can be traded. The price is supposed to represent a value above or below the face value of the bond itself, based on expected cash flow over the remaining bond term, other investment vehicles that could be used in place of the bond, etc. So if you are a bond trader, as in you rely on buying bonds at a discount and selling them at a lesser discount or even a premium, then yes, a large drop in the market value of the bonds will tank your portfolio

But if you are a true investor, as in, you are looking for guaranteed fixed income over a number of years, this is probably the best time to buy the bonds. They are so discounted that a buy and hold strategy would net you some pretty profits, assuming you want to lock the money up. Since the 30 year bonds have a 3.9% rate and you can buy them for 85 cents on the dollar, buy and hold would get you a 17% return at maturity, plus the 29+ years of interest payments. Is it the best use of money? Probably not if you have a burning desire to grow your portfolio more quickly, but if you're 65, 70 years old and want to lock in some kind of return for at least the next 10 years (30 years is a long time for a tech company, but that cash hoard should at least take 10 years to burn through), there are probably worse strategies out there. And if you are buy and hold, there are a number of 3 to 5 year maturity bonds you can probably buy off of panicked traders, though the yield is less than the current dividend yield of the AAPL stock.

And there isn't the added heartburn of "will they, won't they" every time a debt ceiling debate comes up in the US Government.

[jai]

Re: Bad for traders, but still okay for investors

+1 thanks. I was just going to try and type up an explanation like that, but you beat me to it :)

[Anonymous Coward]

Re: Bad for traders, but still okay for investors

Yes and no.

It is a buying opportunity for potential investors, but if you're one of those who queued up to buy these at the issue price, then although you will realise the same cash flows if you hold the bonds to maturity, there's no getting away from the fact that on paper, marking-to-market, you're in a hole right now.

If that didn't matter to anyone, there would be no story. But because investors sometimes do need to liquidate their assets before they originally planned, it does matter, and is a story.

So. Bad for traders, bad for investors, still okay for non-investors thinking about becoming investors.

[Aristotles slow and dimwitted horse]

Whilst I am no financial expert...

I would assume that the sorts of investors that have spunked billions to help Apple dubiously dance around their tax liabilites know exactly that the value of investments can go down as well as up. They are also most likely the kind of investors that probabaly know that the ROI from this sort of thing is measured over the timespan of years - rather than over two months.

I wouldn't be surprised if there are other hidden benefits to this deal - and again, I would assume that the larger investors in these bonds have the legal clout to make sure those hidden benefits stay that way, both from you, and as far as possible - the IRS or other tax authorities also.

[JonHendry]

Re: Whilst I am no financial expert...

Right, these weren't bought by regular folks, they were bought by people paid lots of money to know about bond markets and the risks therein.

[Jim in Hayward]

Re: Whilst I am no financial expert...

Well, I sunk 50K into it. Does that mean I'm a sucker? NOT!

[Roland6]

Re: Whilst I am no financial expert... other hidden benefits

Well I suspect that the canny investor will do a sell-and-buy-back and realise a loss to offset against profits made elsewhere.

[Bernard]

As an addendum to the point raised repeatedly above that this is a bond market issue and not an Apple issue, it's also worth noting that the sentence about a 'Bumwad from the Bank of Toyland' rating, though thoroughly entertaining scores poorly in the accuracy stakes.

A bond's rating is a measure of the likelihood that the investor will be paid the value they're due under the agreement. If the rating on Apple's corporate bonds were bad that would imply that they were close to insolvency.

The value of a fixed rate bond varying as the perceived attractiveness of alternative investments changes is hardly newsworthy on a technology blog, and still less so when the story gets so badly garbled.

[JonHendry]

What? Wall Street/City Boffins Made a Mistake? IMPOSSIBLE

Wait, these people are paid vast sums of money because they're brilliant geniuses.

People making so much money to trade corporate bonds couldn't make an error. It's impossible.

It must be the reptilian shapeshifters' fault.

[Herby]

It isn't sc***ed...

You should have the proper terminology. One should say: Inclined plane wrapped around a cylindrical shaft suitably rotated.

Gee Wiz, get with the program!

[Aye]

Avoid taxes

It is good for the shareholders who is the direct boss of Mr. cook but not good for the all.

Apple got lots of profits and should pay taxes not avoid it.

[Aye]

Avoid taxes

Bad. Really bad action to avoid paying tax.

Not to pay taxed while Apple get a lot of profits is bad, although it is illegal. This bond is good, not for Apple, but for shareholders alone.

Pay more tax will hurt the innovation ? No sir. Apple itself has lot of money to fund research and development. It depends Apple will use it or nor ?.

This is the capitalism....sometimes it is bad.