Another Fee Bonanza Looms for Apple Debt Underwriters
NEW YORK ( TheStreet) -- When Apple
In fiscal second-quarter earnings, Apple said it would increase its capital return to shareholders to over $130 billion by the end of 2015, with repurchases rising by $30 billion to $90 million. Apple also said it would boost its quarterly dividend by 8% to $3.29 a share.
"The Company also plans to increase its dividend on an annual basis. With annual payments of $11 billion, Apple is among the largest dividend payers in the world," Apple said.
More to the point for Wall Street investment banks, Apple said it would finance much of that increased dividend and share repurchase activity.
"To assist in funding the program, the Company expects to access the public debt markets during 2014, both domestically and internationally, for an amount of term debt similar to what the Company raised during 2013," Apple said.
In April 2013, Apple raised $17 billion in debt, a record for a non-financial corporate issuer at the time. Goldman Sachs earned $38.3 million in fees for that debt offering, while Deutsche Bank earned $9.3 million in fees.
Apple was advised well in that debt offering. The company's $5.5 billion in 10-year notes issued at an interest rate of 2.4% now trade at just under 93 cents on the dollar, given a rise in interest rates as the Federal Reserve began to change communications surrounding its bond buying in the Spring of 2013. Thirty year bonds issued at an interest rate of 3.85% now trade at under 90 cents on the dollar.
Goldman Sachs and Deutsche Bank declined to comment.
Investors Press Debt-Funded Buybacks
David Einhorn of hedge fund Greenlight Capital Management was the first large Apple shareholder to propose the company issue debt to fund dividend payments and share repurchases. Einhorn initially applauded Apple's decision in 2013 to finance capital returns to shareholders, however, in subsequent public appearances he has given Apple's capital management mixed reviews.
Through a spokesperson, Einhorn declined to comment.
Carl Icahn waged a public campaign to have Apple increase its repurchase activity in the fall of 2013. On Wednesday, Icahn took to Twitter to applaud Apple's move.
As we said at conference yesterday, we continue to believe $AAPL remains meaningfully undervalued. Many analysts fail to understand company