(Bloomberg) -- AT&T Inc. is in discussions with banks for a new term loan of roughly $3 billion as part of an effort to explore financing options and help the company navigate rising costs in the market for short-term IOUs, according to people familiar with the matter.
The talks are still in flux and details may change, said the people, who asked not to be named because the discussions are private.
AT&T’s latest financing discussions come as the company seeks to pay down the highest debt load of any non-financial company in the U.S. The phone and media giant has been selling off parts of its business, chunks of real estate, receivables and preferred stock to help reduce its debt and fund its 5G network expansion, stock buybacks and dividends. The company had about $163 billion of debt at the end of 2019.
The new potential investment-grade term loan is intended as a temporary alternative to issuing commercial paper, said the people. One-month commercial paper for AT&T was offered Thursday at 1.95%, compared to 1.45% a week ago, a trader said.
Representatives for Citigroup Inc., which is the agent bank on AT&T’s existing revolvers, and the company declined to comment.
Commercial paper is typically used by companies to meet near-term cash needs like payroll, but it has seized up in the last week amid volatility from the spreading coronavirus. AT&T’s commercial paper is rated A2/P2. Three-month borrowing costs for A2/P2 non-financial issuers jumped to 3.23% Wednesday from 1.7% a week earlier, according to Federal Reserve data.
Read more: Traders look to Fed move for answers amid commercial-paper chaos
Rising commercial paper rates have spurred dozens of investment-grade rated companies to tap their revolving credit facilities. Many have also asked banks about new short-term revolvers and term loans, people familiar with the matter said. Companies including Exxon Mobil Corp. and PepsiCo Inc., meanwhile, turned to the bond market Tuesday to refinance commercial paper.
AT&T is rated two steps above junk by Moody’s Investors Service and S&P Global Ratings and four steps higher than high-yield by Fitch Ratings. The company has an existing $7.5 billion revolver maturing in 2021 and another $7.5 billion revolver due 2023, neither of which had been drawn as of Dec. 31, 2019.
The cost to protect against a default by AT&T has also surged to near the highest level since the financial crisis. Credit-default swaps insuring the company’s debt for five-years have jumped to 216 basis points, up from 124 as recently as Friday, according to ICE Data Services.
The Federal Reserve said Tuesday that it would step in to support the commercial paper market. The move may help relieve some of the pressure on companies and pause the rush to tap revolvers and term loans, one of the people said.
A number of airline, cruise and travel companies have tapped credit lines or arranged new term loans with banks to provide a financial cushion as they weather the virus. Even high-grade companies not directly affected by Covid-19 have sought new short-term financing amid broader market uncertainty, the people said.
Read more: Companies worldwide tap more than $40b of loans to weather virus
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