Apple Taps Into Federal Reserve’s Cheap Debt

IPhone manufacturer Apple Inc. (AAPL) has decided to tap into emergency measures provided by the Federal Reserve to cushion the United States economy against plunge inflicted by breakout of coronavirus pandemic.

Under the measures, Apple tapped into these cheap debt measures by issuing cheaper bonds in the markets with an aim of using the cash to pay dividends and fund share buybacks.

Back in March Federal Reserve slashed interest rates to almost zero further saying it will also fit in as the last buyer in the investment grade corporate bond market. The Fed says these measures are to help companies access much needed capital from the markets to see them through this pandemic.

Federal Reserve has been providing cheap debts in the market which have seen many companies including good performing large cap ones like Apple capitalizing on these debts. It has not been business as usual for Apple since the year began.

Late last year the company was experiencing declining sales of IPhones, a situation which has been worsened by the pandemic. From the beginning of the year to date, Apple stock has plunged by over 12% in the S&P 500 Index .SPX.

Apple managed to raise $8.5 billion from issuing four types of bonds which maturity days varying from 3 to 30 years.

The three year bond with a coupon of 0.75% fetched the tech company a total of $2 billion. A five year bond with a coupon of 1.125% raised $2.25 billion for the company. These are the lowest rates Apple has paid on bonds in the last seven years.

According to a regulatory filing by Apple, the raised cash will be directed into repurchasing shares and paying dividends for the period ended March 31. The company is also looking forward to do buybacks of up to $38.5 billion.

 

 

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