Apple leads US companies in sale of corporate bond investments

US companies have become big investors in corporate bonds, but are starting to shed their portfolios.

by Nicholas Dunbar

Updated: December 14, 2018

Led by Apple, the 18 of the biggest US companies that invest in corporate bonds sold $72 billion of them in 2018, according to data compiled by EuroFinance. Amounting to 18% of their holdings, the sales suggest a growing concern about credit risk as corporate bond issuance runs at all-time highs. The same 18 companies sold just $30 billion of government bonds over the same period, the data show.

US non-financial companies have become notorious for their large holdings of cash and bonds, with some $2.5 trillion investments reported in filings by S&P 500 constituents in 2017. Apple’s $200 billion bond portfolio made the company a bigger investor than well-known mutual funds managed by Pimco and Fidelity.

One motivation for US President Trump’s reduction in corporate tax rates passed by Congress in December 2017 was to encourage companies to sell these investments and repatriate the cash, helping the US economy.

Most of the money achieved from corporate bond sales seems to have been returned to shareholders. Apple, which owned $153 billion of corporate bonds in September 2017, sold $32 billion of them in the 12 months to September 2018.

“It is our plan to reach a net cash neutral position over time”, Luca Maestri, Apple CFO said on a 1 November earnings call. “As part of this plan, we returned over $23 billion to investors during quarter. We repurchased 92.5 million Apple shares for $19.4 billion through open market transactions and we paid $3.5 billion in dividends and equivalents”.

A more dramatic sale, as a percentage of bonds owned, was the divestment by US drugmaker Amgen. The company sold $15 billion of corporate bonds during 2018, almost three quarters of its portfolio, according to filings.

“This decrease over the last 12 months was primarily driven by $20 billion of cash return to shareholders in the form of dividends and share buybacks”, said Amgen CFO David Meline on a 29 October call, “partially offset by over $10 million of free cash flow generated in the same period”.

Other big sellers of corporate bonds included Cisco, Oracle and General Electric, which sold $5.7 billion, $5.3 billion and $3.7 billion respectively. Both Cisco and Oracle have spent more than $20 billion apiece on share repurchases in the past 12 months.