AT&T's Bond Exchange Makes Small Dent in Costs It Wanted to Cut

(Bloomberg) -- AT&T Inc.’s approval from about a third of bondholders to exchange notes backing its planned Time Warner Inc. acquisition may not make a significant dent in debt costs it was designed to cut.

The telecoms provider expects to accept exchanges for about $3.87 billion of the $12.7 billion of bonds it offered, according to a statement. AT&T was facing costs of about $1 billion if it had to buy back the bonds at a higher price later this month, Bloomberg Intelligence analyst Stephen Flynn said. Based on the acceptance levels, the cost remains close to the $1 billion figure, he said.

Investors holding another $22.8 million of notes accepted a separate tender offer, another statement Friday said.

The bonds eligible for the offers -- due in 2023, 2037, 2050 and 2058 -- were issued last year to help fund AT&T’s purchase of Time Warner. They contain a special mandatory redemption clause requiring AT&T to buy back the debt at 101 percent of face value if the deal isn’t done by April 22. Meeting the deadline looks increasingly precarious after the U.S. Justice Department sued to block the $85 billion combination on antitrust grounds in a continuing trial.

A representative for Dallas-based AT&T didn’t immediately respond to a message seeking comment.

Relinquished Term

AT&T still has costs of nearly $1 billion in interest expenses and take-out premium for bonds issued to finance the acquisition and likely to be redeemed, said Flynn. The carry and premium on the bonds which participated in the exchange was almost $200 million, he said.

By agreeing to exchange their bonds, holders will receive new notes with the same coupon and maturity, minus the SMR provision. For relinquishing that, they get a 25 basis point premium.

AT&T needed consent from investors representing at least $300 million of the outstanding value on the bonds due 2037, 2050 and 2058, according to a statement last week. The 2023 bonds did not have a minimum condition requirement. There was also no stated threshold for the cash offer to pass.

Several large investors had appeared poised to reject the cash offer before the deadline of 5 p.m. on Thursday in New York. Some bondholders, such as pension funds and insurers, would have been incentivized to do the exchange because they need longer-dated assets to match their liabilities.

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