Apple Inc. is selling its first bonds in euros as the iPhonemaker seeks to fund another round of shareholder rewards withoutusing overseas cash that would be subject to U.S. repatriationtaxes.

The world's most valuable technology company is offering eight-and 12-year notes in the single currency, according to a personfamiliar with the matter, who asked not to be identified becausethey're not authorized to speak about it. Goldman Sachs Group Inc.and Deutsche Bank AG are managing the sale and the money will beused for share buybacks and dividends as well as other businesspurposes, the person said.

By borrowing in euros, Cupertino, California-based Apple cantake advantage of a market with the lowest yields in six yearsrelative to dollar-denominated debt. Apple, which has the biggestcorporate cash hoard at $155 billion, has raised $29 billion frombond sales since 2013 to give back cash to its owners instead ofrepatriating overseas reserves.

“All-in funding levels in euros are so low for corporates at themoment it makes sense to issue here,” said Jens Vanbrabant, thelead money manager at London-based ECM Asset Management Ltd., whichoversees $8 billion. “It's much lower than dollars. There is nodoubt investors will like the name.”

Josh Rosenstock, a London-based spokesman for Apple, didn'timmediately respond to a phone call and e-mail requesting commenton the bond sale.

Apple is marketing the eight-year securities to yield about 40basis points more than the benchmark midswap rate and the 12-yearnotes with a yield premium of about 55 basis points, according tothe person familiar with the sale. The average spread foreuro-denominated investment-grade bonds maturing between seven and10 years is 94 basis points, according to Bank of America MerrillLynch bond index data.

Apple, which holds more than 88 percent of its cash overseas,according to data compiled by Bloomberg, has been pushed byactivist investor Carl Icahn to accelerate its stock repurchaseprogram.

The company sold $12 billion of bonds in April after issuing $17billion in 2013 in the largest corporate bond sale at the time,data compiled by Bloomberg show.

Its $2.5 billion of 3.45 percent notes sold this year havegained 2.9 percent, index data compiled by Bloomberg show. Thesecurities coming due in May 2024 traded at 102.9 cents on thedollar yesterday to yield 3.1 percent, according to Trace, thebond-price reporting system of the Financial Industry RegulatoryAuthority.

Price Guidance

“Apple has already issued a lot in the dollar bond market tofund large share buybacks,” said Jon Brager, a senior creditanalyst at Hermes Investment Management, which manages $45 billionin assets. “They don't want to overload their U.S. investor basewith additional issuance. This deal should be large. Apple couldissue up to 2 billion euros ($2.5 billion) pretty easily.”

The average yield investors demand to hold investment-gradecorporate bonds in euros was unchanged at 1.22 percent, or 0.02percentage point from a record low, according to Bank of AmericaMerrill Lynch index data. That's widened the yield gap with dollarnotes to 1.89 percentage points, the biggest discount since October2008, the data show.

The company is forecasting a record holiday sales quarter afterintroducing new bigger-screen iPhones and slimmer iPads.

Apple's cash accounted for 10 percent of the $1.65 trillion heldby U.S. non-financial companies through the first half of the year,according to an Oct. 20 report by Moody's Investors Service.

Under current law, U.S. companies can defer federal income taxeson most overseas earnings indefinitely. When they do bring back themoney to the U.S., they're taxed at the corporate rate of 35percent, with credits for foreign income taxes paid. Companiespaying little in overseas levies face higher U.S. tax bills uponrepatriation and can save money by borrowing instead.

Billionaire Icahn wrote an open letter last month to Apple ChiefExecutive Officer Tim Cook to increase share repurchases and boostthe value of the stock, which he said was trading at half itsvalue.

'Great Rates'

“They've got so much cash, and generate so much cash, that theycan incrementally increase shareholding funding activity and theywill still be fine,” Lon Erickson, a Santa Fe, New Mexico-basedmoney manager at Thornburg Investment Management Inc., said in atelephone interview.

The company, which had authorized a $90 billion share buybackprogram, has repurchased $67.9 billion of shares as of Sept. 27,according to a regulatory filing last week. Apple also increasedits quarterly dividend to 47 cents earlier this year, resulting ina capital returns program that has increased to $130 billion,according to the filing.

“They will probably be able to lock in great rates but investorsneed to be wary that they could reach a point when credit spreadsstart to leak wider, especially if interest rates start to rise,”Erickson said.

Bloomberg

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