This year, tax reform could give U.S. companies access tohundreds of billions of dollars they have stashed overseas.Many corporations can't wait that long.

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Apple Inc. and Microsoft Corp. sold a total of $27 billion ofdebt this week to fund their daily operations, repay maturing debtand buy back shares. Those bond sales might be unnecessary if newtax laws come this year because under President Donald Trump'sproposed plan, companies could pay a one-time 10% levy tobring back money held overseas, less than a third of the currentrate.

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Apple CEO Tim Cook told investors this week that he was“confident” that “some sort of tax reform” would be coming thisyear. But until it goes into effect, borrowing is still the bestbet for many companies, said Jordan Chalfin, an analyst at debtresearch firm CreditSights.

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“They can't bank on the repatriation until it actually happens,”Chalfin said. “For now, there's a real need for cash.”

Cash Needs

Take Microsoft. As of the end of 2016, it had some $25.1billion of short-term debt known as commercial paper that willmature by the end of September, a number that swelled after its$26.2 billion purchase of LinkedIn. It had just around $6.5 billionof cash in the U.S., according to company regulatoryfilings. Issuing corporate bonds will help it refinance someof those near-term obligations.

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Apple has more stateside cash than Microsoft — about $16 billionat the end of 2016 — but it also has plans for returning another$49 billion to shareholders. Last quarter, Apple spent $15 billionon dividends and stock buybacks.

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Whenever companies can bring back cash, corporate bond issuancewill likely drop, by as much as $150 billion a year, Bank ofAmerica Corp. estimated in November. That's equal to more than 10%of the U.S. investment-grade debt issued last year, according todata compiled by Bloomberg. The companies with the most overseascash tend to be in the technology and pharmaceuticalindustries.

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It's not clear how soon tax reform will come. A number ofpublished analyst notes in recent days have raised questions aboutTrump's ability to implement his promises in the time framepreviously expected. Senior Congressional aides told Reuters thatspring 2018 might be a more likely time frame for tax reform to bepassed.

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“While our base case remains that Republicans can execute a taxreform-driven fiscal stimulus on or around the third quarter of2017, we concede that execution risks are rising,” Morgan Stanley'schief U.S. economist Ellen Zentner and her team wrote in a notelast month.

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If tax reform does happen this year, companies could be allowedto repatriate their overseas cash in 2017, according to Ed Mills, afinancial policy analyst at FBR Capital Markets.

Almost Immediately

The U.S. last saw a tax holiday under a 2004 law. As part ofthat legislation, companies were allowed to bring back foreignearnings for one tax year at essentially a rate of 5.25% if theyreinvested the funds in programs like worker hiring or capitalinvestments. Although that holiday had a time frame of a single taxyear, a program like the House Republicans' could be implementedalmost immediately, and last at least 10 years, Mills said.

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For now, companies don't mind heading back to the debt markets,considering the low yields and minimal volatility, said DaveNovosel, a bond analyst at research firm Gimme Credit.

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“Markets are still pretty good. Why not take advantage of it?”Novosel said. “A month from now, or two months from now, thingsmight not be as good depending on what happens with Trump andCongress.”

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Bloomberg News

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