Investors hooked on the bonds of companies such as Apple Inc.and Oracle Corp. may soon have to look for alternatives if a taxproposal from President-elect Donald Trump becomes reality.

Trump has said he'd temporarily slash the tax rate on fundsrepatriated to the U.S. by American companies to 10% from 35%,meaning cash-rich companies that according to Bank of America Corp.stash an estimated $860 billion to $1 trillion abroad may no longerneed to turn to the bond market as a cheaper alternative to financeshare repurchases.

The impact would be substantial. Apple has become the biggestnonfinancial corporate-bond issuer in the world as it raised morethan $80 billion in just four years to finance share buybacksinstead of repatriating the more than $200 billion of cash it holdsoverseas. Oracle sold $14 billion of bonds in June to partlysupport shareholders. Bank of America expects that if taxes onoverseas cash held by American companies are reduced, bond saleswill go down by $150 billion each year.

“A topic of discussion post the Trump victory is therepatriation of cash and what that does to some of the large techcompanies that would refinance or raise money in ourmarket,” said Todd Mahoney, head of fixed-income syndicate forthe Americas at UBS Group. “That could be a driver of reducedvolume.”

Technology and health care companies — holders of about 80% ofall overseas cash — have sold $136 billion of bonds this year forpurposes other than acquisitions, according to data complied byBloomberg. Apple has issued almost $24 billion of bonds this yearin the U.S. largely to buy back equity. Despite its reliance on thebond market, Apple is sitting on a mountain of funds. Its overseascash pile is more than eight times larger than the amount of bondsit sold this year, company filings show.

After the last tax holiday was passed in 2004, nonfinancialinvestment-grade bond sales plunged by about 30%, according to UBSstrategists. Now, though, that market is almost three times larger,according to Bloomberg Barclays index data.

So long as investors are still clamoring for company debtas issuance falls, a smaller supply year may mean yields aboveTreasuries that are already near the lowest in a year may tighteneven further. But not all bond investors are convinced.

“The market is a lot bigger than it used to be,” said TomMurphy, a money manager at Columbia Threadneedle Investmentsin Minneapolis. “If more supply equals wider spreads, spreadsshould be at infinity.”

The clearest winners in a post-Trump bond market are probablyCFOs such as Kelly Kramer of Cisco Systems Inc. The world's largestmaker of networking equipment has issued about $13 billion of bondsthis year in part to boost shareholders.

“We're encouraged that something will happen,” Kramer said on acall to discuss earnings on Nov. 16. The company keeps more than$57 billion of its cash abroad, according to regulatoryfilings.

“We have many, many scenarios of what we would do whenrepatriation comes,” Kramer said. “We recognize it'll certainlygive us a lot more flexibility.”

Bloomberg News

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