Apple investors see millions wiped off debt bond value

A big name — but a poor investment?

Investors in the recent Apple security sale have seen value plunge by $760 million.


Investing parties who originally scrabbled to secure part of the tech giant's first bond sale — to the point that firms struggled to keep up with public interest — have seen $760 million wiped off the value, according to Reuters.

The longer-maturing bonds, purchased only weeks ago, have suffered some of the largest losses.

Apple's $5.5 billion 2.4 percent 10-year and $3 billion 3.85 percent 30-year bonds are now both trading at lower points than their issue. The 10-year note traded on Thursday at $92.50 — 7.5 points lower than issue — whereas 30-year bonds were quoted at $87.60, a 12-point loss in dollar pricing.

Bonds in Apple's $17 billion plunge into the debt market have lost value so quickly that it would take roughly three years of interest from the coupons for investors to cover their losses. Rajeev Sharma, senior portfolio manager at First Investors Management told the publication that "if you own this paper, you're sitting on it for three years or selling at a loss."

Although the deal was issued at a good time and executed well in terms of pricing, one senior manager of a bond syndicate desk noted:

"This deal is great for shareholders because of the tight coupons Apple locked in to pay for dividends and share buybacks, but everyone who didn't hedge out rate risk — the Moms and Pops who have money in total-return funds — is looking at dollar losses that will suck up a lot of coupon payments."

Despite originally having no debt and billions in cash reserves, Apple issues the bonds to generate billions for a $100 billion capital return program for shareholders rather than face high tax rates in the United States. The iPad and iPhone maker plans to buy back $60 billion in shares, which will raise shareholder dividends over the next two years as part of the program.

Apple attracted 2,000 orders worth $50.2 billion from 900 investors on the date of the bond sale.