National Post (National Edition)
Is Apple’s Maple issue the new standard?
What next after Apple? That’s the challenge for the next Maple bond issuer, given the “WOW” factor that accompanied this week’s first issue by Apple Inc. in the domestic market.
Those challenges will be on many levels: the borrower probably won’t be as high a quality corporate as the AA+ rated Apple; it won’t have Apple’s cachet and scarcity factor or its cash balances to give comfort to investors; and presumably investors won’t be as desperate to get a piece of what’s on offer.
Finally, the next Maple issuer may not enjoy the same secondary market support that’s occurred in the two days the Canadian dollar bonds have been trading: investor demand has caused the bonds to trade at a slight premium to their issue price.
A quick recap: Apple, the world’s largest company, which planned to issue at least $1.5 billion in sevenyear notes, ended up raising $2.5 billion at a coupon of 2.513 per cent. That coupon reflects a spread of 81.4 basis points over a 2.50 per cent Canada bond maturing in June 2024. The spread was at the lower end of the range set when the offering was launched on Tuesday.
One fixed income manager, one of the 74 institutions to be awarded with an allocation, predicts the Apple issue will become “the benchmark” for foreign investors who want Canadian dollar bond exposure.
“Many foreign banks also allow their retail clients to buy bonds directly and this will be the best choice for them,” he argued.
“This makes Apple unique for them. When a retail investor wants Canadian dollar exposure, this will be the easiest and highest quality route for them,” he added, noting what he believes is the contrasting behaviour of foreign buyers with domestic investors. “Canadian retail investors love our banks, but foreigners have no idea who they are.”
But all investors are aware of Apple, if for no other reason than that they probably own one of its products. And Apple seemed to be interested in capturing interest from foreign investors: it registered the issue with the Securities & Exchange Commission which means it could be sold almost anywhere in the world.
Having such a registration is not the norm for a Maple bond. One of the underwriters in the offering said an issuer would make an SEC filing because it may be the only outstanding shelf prospectus it has. “Most of the Maple issuers, if they have an EU shelf available, would usually use that.”
In this bond manager’s view, there is no “equivalent issuer” to Apple in the domestic bond market, from both an industry and credit quality perspective. “Most Canadian bond managers are full to the gills with Canadian bank paper and utilities so they need high quality diversification,” he noted.
Here’s one way to put Apple’s $2.5 billion single-tranche Maple issue into perspective: in 2006, Goldman Sachs Group Inc. did a $1.5 billion maple issuance; in 2007, Morgan Stanley raised $2.5 billion from a three-tranche Maple borrowing, while in May 2017, Anheuser-Busch InBev completed a $2 billion two-tranche Maple offering. Among Canadian non-financial corporations, BCE Inc. is understood to have done the largest raise: it garnered $2 billion in a three-tranche offering in 2002.
We called FTSE-Russell to ask which bond index will house the Apple bond.
We received this reply: “Per company policy, we cannot breach certain parameters with the release of information.” A followup conversation revealed that such information is only made available to clients. And they have lots of clients as the regulators have required portfolio managers to use a market index as a benchmark.