How is this not fraud?

It's possible there was fraud, if the investors were given false statements. But most likely, they made an educated bet and lost.

The people who issued the debt (made loans to the company to buy back its outstanding shares) are sophisticated investors who saw the balance sheets of the company and thought they were likely to get paid back. If things had worked out, they'd have made an above-market interest rate. They also knew what would happen if things didn't work out (the present situation is a typical downside for LBO capital). They didn't lose all their money -- they made 7.375% interest for 15 years. If they get 50% of the capital back through bankruptcy, that's a total return of 160%. Not the worst investment over the last 15 years, though obviously Apple would have been better.

What's fraudulent about it?

I'll give you one thing: the assets of the company are pledged to the senior bond holders, but then after the bonds are sold the PE company generally disposes of the assets, leaving nothing backing the senior debt.

The junior debt, of course, has nothing pledged to back it at all. Junior debt in leveraged buyouts is pure gambling.

This is in the territory of not even wrong

The part where they skim millions in "management fees" to take it private, and then leave it floundering under so much debt that it dies?