JPMorgan’s $20 Billion Loan ‘Credit Negative,’ Moody’s Says
JPMorgan's $20 Billion AT&T Loan 'Credit Negative'
Jin Lee/Bloomberg
JPMorgan Chase & Co. headquarters in New York.
JPMorgan Chase & Co. headquarters in New York. Photographer: Jin Lee/Bloomberg
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JPMorgan Chase & Co. (JPM)’s decision to be the sole lender on a $20 billion loan to AT&T Inc. (T) is a “credit negative” for the bank and may encourage other lenders to take on more risk, Moody’s Investors Service said.
“JPM’s large AT&T commitment highlights how the risk profile of a capital markets business can change quickly,” analyst Sean Jones wrote today in a research note.
JPMorgan is the lone underwriter on the bridge loan to AT&T in its $39 billion bid for Deutsche Telekom AG’s U.S. wireless unit T-Mobile USA Inc. Moody’s called the deal a credit negative for JPMorgan’s corporate debt because it shows the bank’s willingness to finance riskier deals to win a spot as an adviser on the acquisition.
“We assumed they would sell down the loan,” Jones said in an interview. JPMorgan is planning to syndicate the loan to several other lenders, according to a person involved with the deal, who asked not to be named because the talks are private. “The tail risk scenario is that the loan cannot be sold and becomes non-performing,” Jones wrote. Shares of JPMorgan rose 10 cents to $46.96 at 4 p.m. in New York Stock Exchange composite trading.
Even by JPMorgan’s standards, the loan is big at 17 percent of the New York-based bank’s Tier 1 common equity as of Dec. 31, Moody’s said. It’s rare for a loan of that size to be concentrated at a single bank, according to Moody’s.
May Encourage Risk
“If this translates into giving the bank an advantage in winning the mandate to underwrite AT&T’s long-term bond issuances to pay off the bridge facility, then it may encourage more banks to take on greater single-risk exposure, which would be credit negative for the industry, including JPM,” Jones wrote.
JPMorgan, ranked second by assets among U.S. lenders, stands to earn fees of about $20 million from providing the one- year unsecured loan, according to estimates by New York-based research firm Freeman Consulting. The loan-arrangement fee could become “significantly higher” if AT&T’s credit rating is negatively affected by the deal, said Freeman.
Excluding transfers of government assets, the AT&T deal is the largest takeover proposed anywhere since Melbourne-based BHP Billiton Ltd. (BHP), the world’s largest mining company, offered $40 billion for Potash Corp. of Saskatchewan last August. BHP’s bid was blocked by the Canadian government.
Joe Evangelisti, a JPMorgan spokesman, declined to comment.
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net
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