Get Ready for 'iPhone Bonds' in U.S. ABS Market, Moody's Says

Your smart phone will be soon bundled into a bond.

American wireless carriers are likely to start issuing asset-backed bonds that are supported by customer payments on Apple Inc.’s iPhones and other equipment, according to a report published Friday by Moody’s Investors Service. Carriers are now increasingly selling phones through installment-plan financing that in many cases offer zero-interest rates.

“I wouldn’t be surprised if they are called iPhone bonds," Jody Shenn, a Moody’s analyst, said in an interview. "It could be a fairly significant ABS market as it develops. we are talking about a market that could be tens of billions of dollars."

The country’s four biggest wireless companies reported more than $14 billion of installment plan receivables as of the end of September, as well as over $4 billion of leased phones, according to Moody’s. T-Mobile US Inc. may sell debt backed by customer payments on iPhones and other equipment as a way of reducing its financing costs, Chief Financial Officer Braxton Carter said last year. Sprint Corp. is taking $1.2 billion in financing from a phone leasing company created by majority owner SoftBank Group Corp. to help lower equipment costs

Longer-Dated Debt

Tapping the asset-backed securities market, instead of bank loans, offers wireless companies the chance to sell longer-dated debt, lower borrowing costs and reach out to a broader group of potential investors, Moody’s analyst Sanjay Wahi said.

Such a new category of U.S. consumer lending presents unique risks, according to the report. The quality of wireless service -- whether reception is great or bad - could affect a borrowers’ willingness to repay. 

There are strengths, too. An average monthly mobile-phone bill is smaller than a mortgage payment and customers heavy reliance on mobile phones also becomes a positive feature.

“There definitely would be an incentive to” make your payments on time, said Wahi. “It’s such an integral part of our daily life.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE