Corp. Fin. — On A Friday Night! — Apple and Google Supplanting The Role Of Pimco and BlackRock, In High Quality Debt Offerings

With almost unfathomable hoards of cash on hand, here in the US — and especially in Europe (due to repatriation tax concerns) — the tech giants are becoming very aggressive direct buyers (via what’s called reverse inquiry), in high end corporate debt obligations. Merck’s plainly included, here.

Bloomberg has a nice explainer out tonight, as to why Apple would rather reap the bit of additional yield on its own, and essentially leave BlackRock and Pimco sitting on the sidelines, in these deals. But it all boils down to being the biggest tiger in the room. Mr. Cook does it — because he. . . can. Do go read all about it, all you nearly newly-minted MBAs:

. . . .Apple Inc., Oracle Corp. and the other tech giants hoarding half a trillion dollars in cash have joined the ranks of the biggest buyers of the debt, often snapping up as much as half of some bond issues, according to five people with knowledge of the transactions.

The companies are muscling into a market traditionally dominated by big bond funds including Pacific Investment Management Co., BlackRock Inc., Vanguard Group Inc. and Fidelity Investments. . . . they have targeted the bonds of highly rated companies including Exxon Mobil Corp., Merck & Co. and Wal-Mart Stores Inc. . . .

As competition intensifies for bond allocations, tech companies are increasingly approaching other corporate borrowers to anchor new bond sales, or buy the biggest chunks, in what’s known as a reverse inquiry, the people said. They tend to get as much of the debt as they want because underwriters know they typically will hold it to maturity, giving borrowers confidence their deals will get done and maintain value in secondary markets. . . .

So — unless and until Apple gets its foreign cash repatriation tax holiday (which would vastly benefit Merck and Pfizer, as well), the Pimcos and BlackRocks of the world should get used to reverse inquiries, and the underwriters (Goldman and Morgan Stanley, among others) should learn to live on very thin spreads — in these investment grade debt offerings. Of course, each of those players will be reticent to talk about this market erosion. So, now sleep well — all you lil’ buckaroos!

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