Cash generated by financing activities in 1997 included the sale of $150 million of Apple Series A non-voting convertible preferred stock to Microsoft Corporation. Cash used by financing activities in 1997 included $161 million to retire notes payable to banks.$150 million from Microsoft came in the form of equity, which is a non-taxable source of cash for Apple and was applied to a $161 million bank obligation for notes that became due. They NEEDED THE CASH to pay the banks. Remember, their cash generated from operations was only $188 million and they had a current obligation of $161 million. Along came Microsoft with $150 million cash provided in the only form Apple could afford - equity... Do the math.
Add that to Moody's / S&P's analysis:
the Company's debt ratings have been downgraded to non-investment grade. In October 1997, the Company's senior and subordinated long-term debt were downgraded to B- and CCC, respectively, by Standard and Poor's Rating Agency. In the second quarter of 1997, the Company's debt ratings were downgraded to B3 and Caa2, respectively, by Moody's Investor Services. Both Standard and Poor's Rating Agency and Moody's Investor Services have the Company on negative outlook. These actions may increase the Company's cost of funds in future periods. In addition, the Company may be required to pledge additional collateral with respect to certain of its borrowings and letters of credit and to agree to more stringent covenants than in the past.
Bank notes contain multiple covenants related to corporate governance, significant events, benchmarks on solvency, cash ratios, capacity to pay, and debt ratings. This is a universally applied commercial lending practice.
When a company receives a downgrade from a major credit rating agency, it means the financial strength of that company has deteriorated in a material way. When a company is downgraded to "non-investment" grade (junk), that means its ability to operate as a going concern is highly questionable.
The downgrade event triggers a mandatory review by senior / executive risk managers within each lending institution and collateral granter or guarantor that has a stake in the company. Are you with me so far?
Depending on the severity of the situation, corrective action is mandated by the lenders/guarantors to protect investments or collateral pledged. A downgrade to junk status is "dire" and causes a feeding frenzy by senior and subordinate stakeholders to jockey for repayment position. No one wants to be #2 in line and therefore, repayment calls have to go out immediately for the debt obligations.
It's obvious that the S&P/Moody's downgrades created a mandatory loan covenant review event, and given the magnitude of the downgrades, it created a substantial breach of the covenant agreements. There is no way that any lender could avoid taking immediate corrective action by demanding early repayment. Looking the other way on public event of this magnitude would be a terminable infraction at a minimum, causing them to be barred from practicing in the industry, or prosecuted for a multimillion dollar breach of fiduciary responsibility. Martha Stewart got jail time for misleading authorities on a $40K investment.
How do I know all this? I led the design of the industry leading solution for originating and managing commercial and consumer lending. It required meticulous assurance that all of the state/fed/quasi-fed agency laws, regulations, and industry/institution standards and policies were automated correctly. The system had about 15 million lines of code, thousands of rules, and the schema had about 9,000 attributes. Nontrivial.
This should be enough information to paint a pretty clear picture on why people besides just me, assert that Apple was bailed out by Microsoft purchasing $150 million in Apple stock.
Now if you're up to it, show me something a little more concrete than your exceedingly weak postulation that a reference in an SEC report to a cross license agreement (which was mandated by law since it was the creation and sale of equity) somehow proves conclusively that Microsoft wasn't bailing out Apple with the investment and it was actually a settlement for a patent infringement violation.