AT&T Bonds Slump as Time Warner Deal Seen Swelling Debtload

  • Moody’s puts rating on review for downgrade citing leverage
  • CFO says company would ‘argue very strongly’ to keep ranking

AT&T-Time Warner and the Dawn of 'TV Everywhere'

Bonds of AT&T Inc. dropped in the U.S. and Europe amid concern the telecom giant’s $85.4 billion takeover of Time Warner Inc. will lead to a ratings downgrade.

AT&T’s $2.5 billion of 4.8 percent bonds due in 2044 dropped 1.02 cent to 101.1 cents at 11:19 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The cost to protect against losses on the wireless provider’s bonds jumped 0.5 basis point to 98 basis points, according to data provider CMA.

Moody’s Investors Service has put the telecom company’s credit rating on review for downgrade, citing the deal’s impact on AT&T’s debtload. The company will take on $40 billion in bridge loans, including $25 billion from JPMorgan Chase & Co., to help finance its buyout of the owner of HBO and CNN, a person familiar with the matter said. Bridge loans are typically replaced by long-term debt in the bond market. 

“It looks a negative for AT&T,” said Luke Hickmore, an Edinburgh-based senior investment manager at Aberdeen Asset Management Plc, which oversees about $380 billion. “People are worrying about the execution of this deal, the amount of debt coming out and the impact on leverage in the next couple of years.”

In the European market, AT&T’s 1 billion pounds ($1.2 billion) of notes due in June 2043 fell 3 pence on the pound to 107 pence, the biggest decline since they were issued in May 2013, according to data compiled by Bloomberg. Notes maturing in 30 years and 32 years also fell by records. AT&T’s 1.5 billion euros ($1.6 billion) of June 2022 bonds declined by the most since December.

Moody’s, which rates AT&T Baa1, its third-lowest investment-grade ranking, expects any potential cut to be limited to one level, according to a statement

The company “certainly will remain investment-grade and would argue very strongly to keep our current ratings,” AT&T Chief Financial Officer John Stephens said in a conference call on Monday.

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