Apple and Disney are among a swathe of world-leading companies to have collectively borrowed $1 trillion to weather the effects of the coronavirus (COVID-19) pandemic — cash raised in just five months.
Software giant Oracle, aircraft manufacturer Boeing, and telecoms giant AT&T have borrowed the most; they’ve issued corporate bonds worth $25 billion, $20 billion, and $12.5 billion respectively in 2020, reports the Financial Times citing data gathered by Refinitiv.
In fact, investment-grade companies in the US are issuing bonds much faster than in recent years, having raised $504 billion over the same period in 2019. Over the past half-decade, they’ve sold $1.3 trillion in bonds per year, on average.
Companies have been consistent in their borrowing, too. They issued more than $200 billion in corporate bonds for three consecutive months leading into May, which FT noted is the first time that’s happened since 1990.
The Fed made raising billions with bonds super cheap for big companies
Corporate bonds are essentially “IOUs,” a company borrows money from investors in return for special coupons, paying interest over a set period of time until the debt is returned to buyers in full.
But borrowing a trillion dollars has rarely been cheaper for the world’s biggest companies, as the Federal Reserve slashed borrowing costs when it reduced its target interest rate to between zero and 0.25%.
However, those measures have affected the “yield” tied to investment-grade bonds like the ones issued by Apple and Oracle. At the start of 2020 (before COVID-19 struck), buyers of corporate bonds would’ve received 2.9% returns. Now, they’re reportedly likely to net 2.6% on average.
Apple took advantage of this when it raised $8.5 billion earlier this year by selling four different bonds, with lifespans ranging from three to 30 years. The three-year and five-year versions came with 0.75% and 1.125% interest respectively, the lowest rates on such bonds since 2013. The iPhone-maker said it would use the funds to pay out dividends and buy-back its own shares.
As for exactly who will continue fronting cash for the likes of AT&T and Boeing, experts reportedly reckon the US central bank will be next in line, having already invested $1.8 billion with exchange-traded funds exposed to their debt.
I guess the Fed’s money printer still goes brrr.