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> They can't discharge all of that cash without suffering severe consequences due to their need to sustain a high credit rating. What do you mean by this?

• adventured 9y ago
  Microsoft for example has $76 billion in debt, accumulating at a rapid pace. Apple is in a similar situation. They're adding debt at a historic pace. Despite the immense profitability the companies have, their debt holders will get freaked out if those large cash piles were to get discharged down toward zero. For example, Berkshire Hathaway got slapped for allowing its cash to drop a bit low (relatively speaking) a number of years ago (also coincided with the worst of the great recession), their credit rating got dropped a notch in part because of it (despite it being very unrealistic they were actually more risky just because cash was briefly at $30 billion versus $50 billion). You'll often see the ratings agencies & analysts talk about wanting to see Berkshire maintain a large amount of cash due to its obligations. Apple and Microsoft are paying very, very low interest rates on their debt. Given the scale of those debt piles now, they'll desperately want to maintain those low rates. Maintaining a sizable pile of cash will assist them in doing so.
  • ingenuous2 9y ago
    I am naive in this area, but if the creditors freak out, what does that mean? Seems like a "freak out" would mean higher interest rates, and when those rates cross the return from the cash stockpile, they just would stay paying down the debt more aggressively?
    • lmm 9y ago
      Sure; it's just that we're talking about spending the cash stockpile. Microsoft has $126b "in the bank" but that doesn't mean they could actually spend all $126b on some moonshot, because by the time they'd spent half of it it would affect their interest rates and they'd have to start doing something about their debt.
• PKop 9y ago
  They take on debt instead of drawing down their cash pile because they'd be paying much higher taxes on foreign cash than interest on their loans. The low rate they receive on loans is tied to the existence of their massive cash piles
• lmm 9y ago
  If they spent all of their cash (in a not-obviously-investment way) it would hurt their credit rating (and their business can't operate the way it does without a high credit rating). So they might have $43B (say) "in the bank", but that doesn't necessarily mean they could actually spend that $43B if the debt markets didn't think what they were spending it on was sensible.