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With Apple readying a new bond sale to increase shareholder returns, Moody’s Investors Service says Apple ’s ( AAPL ) debt could top $100 billion by year-end 2017 on its current trajectory, which would put its Aa1 credit rating under more scrutiny. Apple is expected to tap the bond market for its fifth multi-billion dollar offering since 2013, when activist investor Carl Icahn stepped up pressure for Apple to increase capital returns. Cupertino, Calif.-based Apple’s debt has shot up from $17 billion in fiscal Q3, 2013 to $63 billion in its fiscal Q1, ended Dec. 26. Apple is expected to add in a range of $10 billion to $12 billion in new debt. In addition to Apple’s adjusted long term debt, Moody’s includes some $5 billion to $10 billion of commercial paper issuances that the company will likely use to manage its liquidity. The iPhone maker issued $8 billion in bonds in May to boost shareholder returns. Apple’s current $200 billion shareholder return program expires in March 2017. “Under the cadence established by the company’s capital return program, Moody’s calculations show an annual need of $15 billion to $20 billion in external funding or foreign cash repatriation to meet domestic cash needs, which include shareholder payouts and acquisitions,” said Moody’s in a report. “Absent Apple repatriating its foreign-held cash, either due to tax reform or otherwise, the company’s adjusted gross debt balance could exceed $100 billion by the end of 2017. Although the company’s financial metrics will likely still be very strong, Moody’s believes that this level of debt and resulting leverage would pressure the Aa1 long term rating and/or the outlook given that Apple operates in a rapidly transforming technology sector.” Apple has some $216 billion in cash, with nearly 90% of it overseas. If companies tap overseas cash, it’s subject to repatriation taxes. With borrowing costs low, they’ve turned to the bond market. Apple stock has been pummeled on weak March-quarter guidance . Apple expects iPhone sales to fall year over year during the period, the first such drop since the introduction of the iconic product in 2007. A growing market for used, refurbished iPhones in emerging markets and the phasing out of iPhone subsidies by wireless firms in the U.S. could both be playing a role in Apple’s disappointing sales outlook. Credit rater Moody’s said in a report that it “also believes that the company will be challenged to maintain its historic sales growth momentum, as iPhone sales cycles elongate and iPad tablet units fall. Without a new blockbuster product in the near-term pipeline, Moody’s estimates that the company’s sales will likely be flat compared to 2015 results, even as cash generation remains robust.” Scalper1 News
Scalper1 News