Apple Inc. (AAPL) funds U.S. operations with credit-free commercial paper

The sheer scale of Apple Inc.’s operations means that the Cupertino tech company can find workarounds for problems that might completely stump a less powerful enterprise. One of case of this is highlighted in a Wall Street Journal article, which points out that Apple is able to get commercial paper without a line of credit, purely on the strength of its overseas cash reserves.

A serious conundrum would confront Apple (NASDAQ:AAPL) if this were not the case. The company is headquartered in the United States and carries out many vital operations in that nation. However, most of the firm’s cash reserves are located overseas. Apple cannot bring this money home because, as Tech Crunch reports, doing so would trigger a penalty equal to 35% of the total. The company is holding approximately $139 billion offshore, meaning that repatriation could potentially rack up a bill as high as $48.7 billion – a powerful incentive to keep the money in foreign banks.

pile of cashHowever, the sheer scale of Apple’s (AAPL) cash holdings enable the company to issue commercial paper without having a line of credit to back up these financial instruments. Commercial paper is a type of debt instrument that companies issue with a maturity of less than 270 days, which exempts it from filing requirements with the SEC (Securities and Exchange Commission). There are limitations on how the money raised through commercial paper can be used by the company, however.

Commercial paper cuts out a lot of red tape and trouble involved in most financial instrument issues, but is usually only available to the most trusted firms. Apple is so trusted that it can not only issue commercial paper but do so with nothing except its own overseas cash to back these instruments. This places it in a very rare category of companies indeed. Moody’s gives the enterprise a P1 rating, the highest credit rating possible. Only a few companies enjoy such a high rating, including Apple, Proctor & Gamble, and Singapore’s DBS Bank.

The U.S. Senate is strongly considering a one-time tax holiday that would allow Apple Inc. to repatriate its offshore billions tax free. This move has strong bipartisan support and is in sync with a move Apple itself has urged for years. The Cupertino firm claims to pay 2.5% of all corporate income taxes in the United States, making it the single largest payer even with most of its profits held hermetically abroad.