The Long and Short
Non-index APTV bonds offer an attractive discount
This material is a Marketing Communication and does not constitute Independent Investment Research.
Aptiv PLC (APTV: Baa2/BBB/BBB) tendered for more than $1 billion of outstanding notes this year as it spun off its electric distribution systems unit. The move left several debt tranches below the $300 million threshold for index eligibility. Those bonds appropriately trade at a discount to comparable index-eligible debt from APTV and its peers. At current valuations, several look attractive for buy-and-hold investors who do not require index eligibility.
APTV management showed its commitment to mid-BBB leverage in May by using proceeds from the EDS spinoff to fund the tender offer and reduce debt. S&P and Fitch affirmed their ratings and moved their outlooks to stable late last year, citing the planned spinoff and debt reduction. Future acquisitions remain a credit risk, but management has shown that it intends to preserve the ratings. Its recent growth strategy also has favored smaller, strategic bolt-on acquisitions. APTV does not pay a dividend. It repurchased $75 million of shares in the first quarter and had $2 billion left under its $5 billion authorization as of March 31, 2026.
APTV redeemed $1.85 billion of debt with spinoff proceeds and another $266 million with cash. In early April, management launched a cash tender offer for $1.37 billion of senior unsecured debt. The redemptions included $456.5 million of the 3.25% notes due in 2032, $370.5 million of the 5.15% notes due in 2034, $303.8 million of the 5.75% notes due in 2054, $123.5 million of the 5.4% notes due in 2049, $111.7 million of the 4.4% notes due in 2046 and $79.6 million of the 4.15% notes due in 2052. The 3.10% notes due in 2051 were the seventh and lowest-priority tranche in the offer, but no holders participated. Five of the six redeemed tranches fell below the index-eligibility threshold. More capital actions are possible if APTV sheds other businesses, but they appear less likely soon.
Investors appear well compensated for the lower liquidity of APTV’s non-index bonds in the 20-year part of the curve. The bonds also compare favorably with index-eligible APTV debt and auto-parts peers such as LEA and BWA. The APTV notes due in 2046 and 2049 trade about 15 to 20 bp wider on a G-spread basis than index-eligible tranches with slightly longer maturities (Exhibit 1).
Exhibit 1: APTV credit curve versus investment-grade automotive parts peers (marker size indicates deal size)
Source: Santander US Capital Markets LLC, Bloomberg/TRACE spread/price indications only
APTV is less a traditional auto-parts maker than a technology supplier to the industry. Its products support autonomous driving and next-generation electric vehicles. The EDS spinoff reduced the company’s scale, with sales falling from about $20 billion last year to a projected $12 billion in 2026. But it also improved diversification. About 25% of revenue is now expected to come from outside passenger vehicles, making the business less cyclical. Other markets include commercial, industrial, data and telecommunications, and aerospace and defense.
The EDS spinoff also should lift APTV’s profit margins. EBITDA margins are expected to reach about 20% within one or two years, up from 15.7% last year. Most peers operate at 7% to 18%. Last year, EDS margins were about 8%, compared with about 17% for the other engineered components group businesses and 11% to 12% for advanced safety and user experience.
APTV’s global revenue mix helps limit tariff exposure if US trade tensions rise again. In 2025, North America accounted for 37% of revenue, Europe, the Middle East and Africa 32%, and Asia-Pacific 29%. In the first quarter of 2026, those shares were about 38%, 32% and 27%, respectively. Most products sold in the U.S. are made in North America, further reducing tariff risk. APTV is incorporated in Jersey and based in Switzerland.
APTV has strong liquidity after the spinoff and limited near-term maturities following debt reductions in 2025 and early redemptions in 2026. It reported $3.17 billion of cash at the end of the first quarter of 2026. After the tender offers, cash and equivalents likely will be about $1 billion to $1.3 billion on a pro forma basis in the next earnings report. APTV also has a $2.85 billion revolving credit facility through 2030. Its only relatively near-term public debt maturity is $569 million due in 2028. The next is $800 million due in 2031, with most debt maturing later.
Recent second-quarter earnings reports point to favorable conditions in the auto sector. Ford Motor Co., in particular, reported strong results this week. APTV does not disclose revenue by automaker, but Ford is among its largest customers and accounted for an estimated 11% of sales in the second half of last year. In recent years, APTV’s five largest auto customers have generated about 40% of sales, and the top 10 about 55% to 56%.
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