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Low interest rates and high bond demand offer a chance to lift the stock price.

New York Times

With a $145 billion cash hoard, Apple could acquire Facebook, Hewlett-Packard, and Yahoo - and still have more than $10 billion left over.

Despite its uncommonly flush balance sheet, Apple borrowed money on Tuesday for the first time in nearly two decades. In a record-sized bond deal, the company raised $17 billion, according to a report in the New York Times based on a person briefed on the deal. The bonds will pay interest rates that rival those of debt issued by the U.S. Treasury.

Apple's corporate-finance maneuver raises a riddle: Why would a company with so much cash even bother to issue debt?

The answer has a lot to do with the frenzied state of the bond markets. Companies are issuing hundreds of billions of dollars in debt to exploit historically low interest rates and strong investor demand for bonds as an alternative to money market funds and Treasury bills that are paying virtually nothing.

"If you look at these big companies like Apple and Microsoft doing these big, low-cost bond offerings, it's a way for them to raise money in an effort to create better returns for their shareholders," said Steven Miller, a credit analyst at S&P Capital IQ. "The bond markets are practically begging these corporations to issue debt because of how cheap it is to raise money."

But Apple's move also reflects the challenges of a highly successful business with a flagging stock price.

In an effort to assuage a growing chorus of concerned and disappointed Apple investors, the company is issuing bonds to help fund a $100 billion payout to its shareholders. It will distribute most of that amount during the next 21/2 years in the form of paying increased dividends and buying back its stock.

While Apple's shareholders and analysts welcome the company's financial tactics, they say that the maker of iPhones, iPads, and Macs must continue to innovate and fend off increasing competition.

"This is a substantial return of cash and it's the right thing to do on many levels," said Toni Sacconaghi, an analyst at Bernstein Research. "But, ultimately, the company has to execute. This is no substitute for that."

By raising cheap debt for the shareholder payouts, Apple will also avoid a potentially big tax hit. About two-thirds of Apple's cash - about $102 billion - sits overseas in lower-tax jurisdictions. If it returned some of that cash back to the U.S. to reward its investors, the company could have significant tax consequences.

"We are continuing to generate significant cash offshore and repatriating this cash would result in significant tax consequences under current U.S. tax law," said Peter Oppenheimer, Apple chief financial officer, during an earnings call last week.

In some ways, Tuesday's bond issue was made necessary by Apple's tax strategies.

"They have been so successful with their tax planning that they've created a new problem," said Martin A. Sullivan, chief economist at Tax Analysts, a publisher of tax information. "They've got so much money offshore."

The $17 billion debt sale by Apple is the largest on record, surpassing a $16.5 billion deal from the drugmaker Roche Holding in 2009.