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By Jason Stipp and Michael Hodel, CFA | 05-03-2013 12:00 PM

Our View on Apple's Big Bond Sale

Apple's record-making bond issuance was met with tremendous demand this week, but it's not our favorite large-cap tech bond idea today.

Jason Stipp: I'm Jason Stipp for Morningstar.

Apple priced a $17 billion bond deal this week, a record amount for an investment-grade offering.

Here to offer his take is Morningstar's Mike Hodel, an analyst on our equity and credit research team.

Thank for joining me, Mike.

Michael Hodel: Thanks for having me, Jason.

Stipp: There have been a lot of knocks on Apple recently, but one of them has not been about how much cash the company has. They have a pretty big cash hoard. Why are they issuing this debt?

Hodel: Well, there's a couple of reasons. So to get the stock price up, Apple has committed to returning $100 billion to shareholders over the next three years. So they've upped their dividend. They've put in a $60 billion share repurchase program. And to do that, they're going to be consuming cash here in the U.S.

Now, you look at the $140 billion or so in cash that Apple has on the books, about $100 billion of that is overseas, where they'd have to pay taxes to bring that back into the U.S. and use it for share repurchases and dividends. The remaining $40 billion they can use as they see fit. But as they're paying out this dividend and buying back stock, there is a risk that that will be depleted to a level they're uncomfortable with. So the company wants to maintain some large amount of U.S. cash, so they can do strategic things as they arise over the next few years.

The other piece of it, too, is that with interest rates being exceptionally low, this is a great time for Apple to take on some debt, bolster its U.S. cash position, and then have the ammo to buy back stock as it sees fit, to do strategic deals as it sees fit over the next couple years, and just have the flexibility that they want as a corporation.

Stipp: What's our take on Apple's credit worthiness? Obviously, a strong company with good sales prospects, good products. How do we rate them and how does it compare to what others rate them?

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