Greenlight Company Presentation
iPrefs Should Yield About 4%
o Fed policy of zero interest rates creates enormous demand for safe income
o There are no other large preferred issuers of equal quality
o Microsoft and IBM long-dated debt yields less than 4%
o iPref dividends are taxed at a lower rate than interest income
o Size will matter - but not that much...
o iPrefs will be a very high quality instrument
Greenlight Capital, Inc.
35
As a result of the Fed's Zero Interest Rate Policy, there is a widespread need for safe income. There
are very few high-quality corporate issuers that offer sizable amounts of safe, income-paying
instruments, and there are none that approach Apple's quality. It is a little hard to find good
comparisons to demonstrate how the iPrefs will trade. Most preferred stocks are issued by highly
leveraged financial institutions.
As for technology borrowers, Microsoft 30-year AAA rated paper yields 3.9%. IBM 30-year AA- rated
paper yields the same as Microsoft. We think Apple should at least be comparable to those.
On a pre-tax basis, Apple's 4% preferred would offer a 80 basis point credit spread to 30-year U.S.
bonds and a small spread to very high quality corporate bonds.
The iPref dividends will be taxed at the lower dividend rate. Taxable investors, on an after-tax basis,
would earn 1.3% more than government bonds and about 0.9% more than high quality corporate
bonds.
When Apple initially distributes the iPrefs, they might trade a bit cheaply at first, as this will be a large
issue and many common shareholders that aren't interested in safe income will look to sell. But over
time, the size might turn into a benefit because the iPrefs should be highly liquid and could even
garner a liquidity premium and serve as a benchmark.
Obviously, if Apple issued a very, very large amount, the market would demand a higher yield.
However, nothing we are suggesting today would approach that level. We expect the market to
accept the iPrefs as a premium quality instrument.
35View entire presentation