Apple is about to issue its second green bond.

Lisa Jackson must be prepared to address questions that

might arise related to the unique nature of that bond. Be prepared to discuss the following questions in
class:

1. In regard to potential allegations of greenwashing, what specific questions might Jackson anticipate?

How might she respond?

2. What is your best estimate of the yield to maturity the new bond might exhibit, assuming it was a
conventional bond, not a green bond? As the case makes clear, you need to account for yield curve and
credit quality effects. You can approach this problem in at least two ways:

a. Use the outstanding Apple bonds. Be prepared to justify this approach. Note that you can find the
time to maturity by subtracting the maturity date from the case date. A graph of yield curve for Apple's
bonds can be created from case data and contrasted with the yield curve on US government (risk-
free) bonds.

b. Use the data on bonds of companies similar to Apple. Be prepared to justify this approach.

3. What is your best estimate of the greenium the new bond will carry? Calculate this greenium as an
adjustment to the yield you estimated in question 2 (not as an adjustment to price). Provide an estimate
of a reasonable high and low greenium.

4. By how much has Apple increased its use of debt financing? Is it at risk of having its credit rating
adjusted downward? Two common ratios used to describe debt levels are EBIT-to-interest expense and
debt-to-EBITDA. EBIT is earnings before interest and taxes and is listed as operating income in Apple's
income statement. EBITDA is earnings before interest, taxes, depreciation, and amortization.

To find EBITDA, add depreciation and amortization (separately identified in the provided income
statement) to EBIT. Note that other long-term liabilities would not be considered debt and that interest
is only the interest paid (ignore interest income and dividend income). Debt in this analysis is book value.

Step 1: GREEN WASHING ALLEGATIONS :

Potential Questions :

o how does apple ensure that the funds raised from the green bond are genuinely used for
environmentally beneficial projects ?

o what specific projects will the proceeds of the green bond finance ?

o how does apple measure the environmental impact of these projects?

o what mechanisms are in place to report on the use of proceeds and their impact?

o how does apple ensures transparency and accountability in the allocation of gren bonf
proceeds?
RESPONSES:

Explanation:

In response, Lisa Jackson may highlight apple's dedication to environmental sustainability and openness.
Lisa is able to draw attention to the following:

o clear allocation

o project examples

o impact measurement

o reporting and verification

o alignment with standards

Step 2: ESTIMATING YIELD TO MATURITY:

Approach:

a. using outstanding apple bonds:

Explanation:

o data collection : gathering the data on the yields of existing apple bonds with various
maturities

o yield curve construction: plotting the yields of these bonds against their maturities to
create apple's yield curve

o yield estimation: using this yield curve to estimate the yield to maturity (YTM) for a new
bond with a similar maturity as the green bond

b. using the similar companies bonds:

Explanation:

o comparable companies: identify companies with similar credit and industry standing as
apple

o yield comparison: collect yield data from bonds issued by these companies and compare
them with apple's bonds

o adjustment for differences: adjust for any differences in credit ratings and market
conditions to estimate a fair YTM for apple's new bond

Justification:

o apple bonds: directly reflects apple's specific credit risk and market conditions
 o similar companies: provides a broader market perspective and helps validate the
estimates derived from apple's own bonds

Step 3: ESTIMATING THE GREENIUM:

Definition:

Explanation:

The Greenium is the yield discount that green bonds typically carry compared to conventional bonds due
to their perceived environmental benefits

o Assume the YTM for a conventional apple bond of similar maturity is 2.5%

o Greenium ranges typically from 5 to 25 basis points (0.05 % to 0.25%)

Step 4: DEBT FINANCING AND CREDIT RATING RISK:

Calculation Steps:

Explanation:

o determine apple's current debt levels : gather data on apple's current debt from its
balance sheet
o calculate EBIT and EBITDA : EBIT (operating income) can obtained from income
statement , depreciation and amortization , EBITDA = EBIT + DEPRECIATION +
AMORTIZATION
 o calculate debt ratios: EBIT to interest expenses (EBIT/ interest expense) , debt to
EBITDA (total debt/ EBITDA)
o analysis: either increased debt levels or credit rating impact

 Answer
o Finally by above steps, can be proceed to gather the necessary data and perform the
calculations