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Apple shifting money out of the bond market following Trump tax cuts

Apple is pulling back on its investments in the corporate bond market, as it prepares to repatriate billions of dollars in overseas cash under the Trump tax cuts, Bloomberg reports, citing unnamed sources.

And the company is not alone. The sweeping Republican tax cuts passed in December could have deeper effects on the corporate bond market, as companies buy fewer bonds as investments, and issue fewer bonds in favor of repatriating their own cash.

Until recently, Apple held $285 billion in cash, mostly stashed away in overseas accounts outside the long arm of the IRS. The company invested around 55 percent of its cash reserves, roughly $157 billion, in corporate bonds, making it one of the country’s largest corporate lenders. Apple has also issued its own bonds, as a way to raise money cheaply.

But early indications suggest both strategies could be changing, not only for Apple, but for other large corporations, which collectively hold some $3.1 trillion in cash overseas.

In one recent bond offering, participation from large technology firms fell to one-sixth of their typical involvement, Bloomberg reports. Large institutional investors worry that the bond market will contract, as companies issue fewer bonds and there are fewer corporate buyers for those bonds.

The recently passed tax overhaul cut the corporate tax rate from 35 percent to 21 percent. Separately, it cut the cost of repatriating cash held overseas from 35 percent to 15.5 percent.

Apple plans to bring back $245 billion in cash held overseas, and pay $38 billion in taxes. If the company had brought back that cash under the previous 35 percent tax rate, it would have paid nearly $86 billion in taxes.

Apple says it plans to use the money to hire more workers, build a second campus and issue $2,500 bonuses to all employees. Analysts expect Apple to also buy back stock, issue shareholder dividends and pay down corporate debt. Apple employs more than 120,000 people worldwide.

: bizjournals



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