AT&T Selling Bonds in Pounds as Swap Cost Holds at Two-Month Low

AT&T Inc. is selling its first bonds in pounds in a year as the cost to exchange the U.K. currency for dollars holds at the lowest in two months.

The largest U.S. telephone company is raising 1 billion pounds ($1.6 billion) from 30-year notes that will yield 118 basis points more than similar-maturity gilts, according to a person familiar with the transaction. The cost for companies to convert pound interest payments into dollars using the 30-year cross-currency basis swap is 15 basis points below three-month sterling Libor, data compiled by Bloomberg show.

AT&T exchanged all its foreign currency debt into dollars using cross-currency swaps as of the end of 2012, the Dallas-based company said in its annual report on Feb. 22. The average yield investors demand to hold company bonds in pounds is 3.4 percent, seven basis points above a record-low reached on May 2, Bank of America Merrill Lynch index data show.

“The perennial demand for long-dated assets shown by U.K. funds occasionally allows large U.S corporates such as AT&T to raise funds more cheaply in sterling and swap back to dollars,” said Chris Clark, a London-based interest-rate strategist at ICAP Plc, the world’s largest interdealer broker. “Although pound-dollar basis prices still indicate a cost to U.S. issuers executing this strategy, they have tightened in significantly over the past month and such a deal could now make sense.”

AT&T’s bonds were initially marketed to yield 120 to 125 basis points more than gilts, according to a person familiar with the deal.

Sarah Lubman, an external spokeswoman for AT&T based in New York, declined to comment on the sale.

The company last sold bonds in pounds in May last year, according to data compiled by Bloomberg. It sold 1.25 billion euros ($1.6 billion) of 10-year securities in March.

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