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.”

— With assistance by Matt Scully

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