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Great time to do this, with their greatly increased stock price and still very low interest rates. They're repaying their debt when they have the greatest lever
by hkmurakami 14y ago
Great time to do this, with their greatly increased stock price and still very low interest rates. They're repaying their debt when they have the greatest leverage (unlike the common industry practice of buying back stock when their stock is the most expensive), which is a very shrewd decision.
- Symmetry 14y agoI agree that issuing the new stock was probably a good move, but I'm not sure about paying back the debt. Low interest rates now mean that debt is relatively cheap, and if you think you might need the extra cash at some point but aren't sure if interest rates might rise at some point it might make sense to just keep the cash and don't pay back the debt. Lots of companies are actually taking loans they don't need just to lock in rates, and then pretty much just sit on the cash. That's part of the reason that the amount of dollars in circulation has gone up by a huge amount over the last few years while causing negligible inflation.
- hkmurakami 14y ago>Lots of companies are actually taking loans they don't need just to lock in rates, and then pretty much just sit on the cash. If you're MSFT or AAPL and can issue bonds at 1% and buy other comapnies' bonds at 3%, that's a pretty easy way to lock in a spread. Interest rates are virtually guaranteed to rise in the next 3-5 years. Bernanke's previous quote is for interest rates to remain low until 2015, and Pimco has proclaimed that "the 30 year bull run in bonds is over".