Corporate bond sales ascended to a stratospheric new record in the first half of 2014, according to a report published yesterday by the Wall Street Journal, driven in part by massive debt offerings by Apple Inc. (NASDAQ:AAPL) and Oracle (NYSE:ORCL). The six month period ending on June 30th, 2014 witnessed $642 billion worth of corporate bonds being sold, surpassing the previous record, set in 2009, by approximately $30 billion.
Apple Inc. (AAPL) made a bond offering of $12 billion in late April, according to Bloomberg’s Sarika Gangar and Matt Robinson. This maneuver was carried out despite the Cupertino company’s vast cash reserves in order to avoid paying U.S. taxes on its overseas profits, as it would have to do were it to repatriate this hoard. This means that 1.8% of the record bond sales were generated by a single company, Apple, underlining its scale and market power.
Oracle (ORCL) just made a bond offering of $10 billion, accounting for another 1.6% of 2014’s unprecedented debt sales. Together, the two tech companies made up 3.4% of the new bond issues, or roughly 1/29th of the total in fractional terms. These figures suggest the massive size and importance of today’s technology firms. Out of every $100 spent to acquire bonds in the first two quarters of 2014, $3.40 went into the coffers of one of these two enterprises.
Of course, bond sales tend to be lower in the second half of a given year than in the first half, as companies utilize the new funds for production and investors await results. The second half of 2014 is unlikely to witness any new records.
The two firms are apparently using the cash generated by these debt sales for similar purposes. Apple Inc. (AAPL) is using the funds to continue its stock buyback program, and to make a series of acquisitions such as its recent purchase of Dr. Dre and Jimmy Iovine’s “Beats.”
Oracle (ORCL) is also engaged in buybacks and in an acquisition spending spree. According to MarketWatch’s Sara Sjolin, Oracle is buying out Micros Systems for $5.3 billion. Micros is a retail and hotel software producer, and represents Oracle’s biggest buyout following its 2010 deal to absorb Sun Microsystems for no less than $7.4 billion.
The record bond sales indicate a tech sector which is moving ahead vigorously and expanding, but also one which is witnessing a period of consolidation, acquisition, and merger. Apple and Oracle are likely to emerge more powerful than ever from this period, poised to bring new products to the table or make further acquisitions as seems most strategic to those piloting these massive enterprises.
