[s1artibartfast]

You also make a dollar in the process.

You take out a $1 loan (bond). You then pay yourself with the $1 (stock buyback).

You are realizing future profits today. As long as the cost of bringing those profits forward is less than reward, you net profit.

Interest tax deductions are just a perk.

[hn_throwaway_99]

Your comment does nothing to aid my understanding of the situation.

Yes, anyone can take out a loan to get money now that they don't have to pay off until the future. Nobody misunderstands that. And I also fully understand taking out loans to invest in productive capacity when you need that capital. But if you have a couple billion dollars sitting in the bank, presumably making less interest than you'd need to pay for a bond issuance, then it still doesn't explain why issuing the bond makes sense.

[s1artibartfast]

The key piece missing then is corporate valuation.

This is an arbitrage play based on the difference between investor sentiment and debt on the books.

The idea is that their market valuation will go down less than $1B if they issue a $1B bond.

Similar nonlinearities are true for other corporate holdings. Facebook has $40B cash on hand. If they had $0 on hand, That would hurt their valuation by a lot more than $40B because investors like to see some cash in the bank, and see it as a red flag. Similarly, Investors dont care much about a little debt, and facebook is an outlier in that it has very low levels of corporate debt.