AT&T May Keep Blue-Chip Status Despite Ratings Cut Warnings

Wall Street Fee Payday Behind $40 Billion AT&T Pledge

AT&T Inc. faces potential credit downgrades from Moody’s Investors Service and S&P Global Ratings after announcing its takeover of Time Warner Inc., though it may hang on to its cherished investment-grade rating.

Moody’s is placing AT&T’s Baa1, which is three steps above junk, on review for downgrade and expects any potential cut to be limited to one level, according to a statement. S&P issued a similar warning about its equivalent BBB+ rank for AT&T.

Bonds of AT&T dropped amid concern the company’s $85.4 billion takeover of Time Warner would lead to a ratings downgrade. The number-two U.S. wireless provider will take on $40 billion in bridge loans to help finance its buyout of the owner of HBO and CNN, a person familiar with the matter said. Dallas-based AT&T’s ambitions are constrained by its already-hefty $120 billion debt load.

The deal could cause a one- or two-level cut in the telecom company’s credit rating, said Luke Hickmore at Aberdeen Asset Management Plc. AT&T Chief Financial Officer said on a conference call with analysts that the company didn’t expect a downgrade.

JPMorgan Chase & Co. has pledged $25 billion of the financing, with Bank of America Corp. providing the rest, according to a regulatory. That’s believed to be the most JPMorgan has ever promised for a deal, according to a person with knowledge of the matter who asked not to be identified without authorization to speak publicly.

The lending commitment gives the banks an advantage on bond offerings that would find willing buyers among yield-starved investors, analysts say. At the same time the banks face the risk that the deal, along with a chunk of their balance sheets, would be tied up if regulators delay approving it.

JPMorgan intends in the coming weeks to syndicate most of the loan to other banks that already lend to AT&T. The loan is structured as a bridge deal, a type of financing that a borrower repays by issuing debt in capital markets. In the case of AT&T, most of the deal will be replaced by high-grade bonds, with a potential portion in the form of term loans, the person said.

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