Apple investors hit with losses
Investors in Apple's record US $17bn (€13bn) bond deal have suffered some of the biggest losses in recent investment-grade new issues, with about $760m wiped off the value of longer-maturing Apple securities that they bought just weeks ago.
The prices of the Apple 10-year and 30-year bonds have plunged so much since the deal priced on April 30 that it would take about three years of earned interest from the coupons for investors to cover their losses.
"Basically, if you own this paper, you're sitting on it for three years or selling at a loss," said Rajeev Sharma, senior portfolio manager at First Investors Management, who bailed out of his position in the 10-year at a loss some weeks ago.
The staggering losses are a painful lesson to the vast number of unhedged total return investors that it takes more than just being comfortable with credit risk to play in the corporate bond markets.
"This deal is great for shareholders because of the tight coupons Apple locked in to pay for dividends and share buybacks, but everyone who didn't hedge out rate risk – the Moms and Pops who have money in total-return funds – are looking at dollar losses that will suck up a lot of coupon payments," said one senior manager of a bond syndicate desk who was not involved in underwriting the deal.
Apple attracted 2,000 orders worth $50.2bn from 900 investors when it made its debut in the bond markets.
"This is not Apple's fault," said the senior manager. "It's a fantastic credit. This deal could not have been better timed or executed in terms of pricing.
"And in terms of credit spreads, it's widened out – but not by as much as many other names in its sector."