AT&T Sells Year's Biggest Bond Deal and Market Wanted Even More

  • Orders were said to be triple the $22.5 billion offered
  • Offering likely to complete funding for Time Warner takeover

Even the biggest debt-market deal of the year wasn’t nearly large enough to satisfy yield-hungry investors.

AT&T Inc. sold $22.5 billion of bonds in a multi-part offering on Thursday, drawing almost three times as many orders as there were securities for sale, according to a person with knowledge of the matter. It’s not only the largest investment-grade deal of the year, but the third-biggest in history behind offerings from Verizon Communications Inc. and Anheuser-Busch InBev SA. The sale is likely the last funding AT&T needs for its $85.4 billion takeover of Time Warner Inc.

The longest portion of the sale, which came in seven parts, is a 41-year bond that yields about 2.4 percentage points above Treasuries, down from initial talk of 2.55 percentage points, another person said. With the U.S. offering higher yields than Europe and Japan, it has become a destination for foreign investors to park their money, a trend that AT&T benefited from.

“Demand has been strong for investment-grade credit and this was a well-telegraphed deal,” said Todd Schomberg, an Atlanta-based senior portfolio manager at Invesco Ltd., who said earlier on Thursday that he planned to buy some of the debt. “People were set up and waiting to buy AT&T in the new-issue market.”

The No. 2 U.S. wireless provider originally planned a $15 billion sale, but the offering ballooned as investors placed orders for around $65 billion of securities.

Subscriber Gains

A day earlier, AT&T stunned analysts and investors with a surprise wireless subscriber gain in the second quarter, proving it can hold its own in a highly competitive price war and propelling shares to their biggest gain in more than eight years. Rivals Verizon and T-Mobile US Inc. also reported strong results as industrywide incentives and giveaways attract new customers.

AT&T needed to raise only about $5 billion to fund the remainder of the acquisition, according to Bloomberg Intelligence, rounding out the term loan and euro-denominated bonds it’s already sold to support the deal. Investor demand and credit market conditions were strong enough for the company to issue more, said Bloomberg Intelligence analyst Stephen Flynn.

“The opportunity was there for them to sell it and they have such a large debt load with so much debt rolling over every year,” Flynn said, noting that AT&T has about $10 billion of debt maturing next year. “If they can get ahead of that and take advantage of where the markets are, it makes sense.”

AT&T’s credit ratings remain on review for downgrade from both S&P Global Ratings and Moody’s Investors Service pending the completion of the deal, which would add to its already $133 billion debt load.

Funding Done

The deal “will take them out of the unsecured debt market most likely for the rest of the year,” Invesco’s Schomberg said.

AT&T previously came to market with a 7 billion euro ($8.2 billion) offering and a 1 billion pound ($1.3 billion) sale in June for the acquisition. It also received a $10 billion term loan for the deal last year. AT&T lined up $40 billion of bridge financing, a type of borrowing that’s typically replaced by long-term debt in the bond market, in October. It cut the bridge to $30 billion after getting the term loan. 

Bank of America Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co., Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. are managing the sale, AT&T said in a statement.

‘Pretty Fortuitous’

“It’s a pretty fortuitous time for them,” said Tom Murphy, a Minneapolis-based money manager at Columbia Threadneedle. “The market from a technical standpoint was pretty well set up for this transaction to come.”

In October, Dallas-based AT&T agreed to acquire Time Warner, which is headquartered in New York, in a cash-and-stock deal. The acquisition would form a media and telecommunications empire that owns many of the movies and TV shows it pumps through to wireless, internet and pay-TV subscribers.

The proposed merger has raised concerns from the Department of Justice as to whether AT&T would use its pull to unfairly advantage its own programming. U.S. antitrust officials have already started talking to representatives from both companies about possible terms that would secure approval of the deal, according to people familiar with the discussions.

— With assistance by Brian W Smith

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