Daily Archives: April 27, 2015

Apple Inc. Bonds: How Much for the World’s Number One Brand?

Apple Inc. (AAPL) ranks number 1 on the Forbes “most valuable brand” rankings. What does it cost, in terms of brand premium, to buy the bonds of Apple Inc.?  We answer that question in this note. We last reviewed Apple Inc. on January 20, 2014. In this note, we turn to the U.S. dollar bonds issued by Apple Inc. and compare its current default probabilities and credit spreads with those on all heavily traded corporate fixed-rate bonds on March 3, 2015. A total of 307 trades were reported on 14 fixed-rate bond issues of Apple Inc. with trading volume of $145.2 million on March 3. Apple Inc. was the 11th most actively traded corporate bond issuer on March 3. We use this information for three purposes: to evaluate the risk and return on the firm’s bonds, to evaluate the firm’s credit risk-adjusted dividend yield, and to reach a conclusion on investment grade status by the modern “Dodd-Frank” definition.

Conclusion:   The passion that equity and bond investors have shown for the common stock and bonds of the world’s number one brand is easy to understand.  Apple Inc. literally has the lowest default probabilities of its peer group at every maturity from 1 month to 10 years.  The firm is as close to the best bond rating as one is able to come in the 2015 environment.  If there is any bad news for bond investors in Apple Inc., it’s that bond prices have been bid up so strongly that the firm’s bonds offer just average value, as measured by the ratio of credit spread to default probability.   There were 148 heavily traded bond issues that offered better value by this criterion than the best Apple Inc. bond on March 3.  For investors with long memories, you will recall that the 1 year default probability of Apple Inc. rose above 3.50% in 1997-1998. Euphoria can be misleading at times.

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