AT&T Looks to Ditch Debt Throne in $43 Billion Deleveraging Push

(Bloomberg) -- AT&T Inc. was once the poster child for firms willing to sacrifice their credit ratings for the sake of debt-fueled acquisitions. Now, the company is making its biggest push yet to cut debt and ditch its long-held status as the world’s largest borrower.

The telecom giant will reduce net debt by $43 billion as a part of a plan to spin off its media operations in a deal with Discovery Inc., according to an investor presentation accompanying the announcement. If its gross debt of $190 billion declines by roughly the same amount, AT&T would drop behind Verizon Communications Inc. in the rankings of the most indebted non-financial companies globally, according to data compiled by Bloomberg.

AT&T has been on a yearslong effort to tame a debt load that once swelled to about $200 billion, largely accumulated via its 2018 acquisition of Time Warner Inc. With the Discovery transaction, AT&T will reach its goal of reducing leverage to 2.5 times a year ahead of schedule, and possibly spare bondholders from any potential ratings action that would push it closer to speculative grade.

“This is a big step forward to reaching that leverage goal,” said Bloomberg Intelligence analyst Stephen Flynn. “Debt reduction should be the No. 1 priority.”

AT&T’s bonds were among the best performers in the U.S. investment-grade market Monday. The most actively-traded securities, the 3.5% bonds due 2053, tightened 11 basis points, the most since November, according to Trace. The annual cost to protect AT&T’s debt against default for five years dropped the most since February.

AT&T has chipped away at its debt load and streamlined its business through a series of refinancings, exchange offers and asset sales in recent years. Yet it recently deviated from its debt diet when it pledged to spend up to $23 billion on spectrum to expand its 5G network, a move largely financed by bonds and loans.

That drew a downgrade from Fitch Ratings and a negative outlook from S&P Global Ratings in March. Verizon, which borrowed $25 billion in the year’s largest bond sale to help fund its own spectrum purchases, saw its positive outlook changed to stable by Moody’s Investors Service.

U.S.

Square Inc. is looking to raise $2 billion from a debut junk-bond sale, one of the largest inaugural new issues of the year, according to data compiled by Bloomberg. Eight other deals kicked off marketing Monday.

• High-grade issuance is set to remain strong and steady this week, with $30 billion to $35 billion of fresh supply expected following a $42 billion week headlined by Amazon.com Inc.’s jumbo sale
• Rally-weary U.S. junk bonds posted the biggest loss in two months last week. Still, investor demand remained robust, with more than $13 billion of deals priced
• Bank of America expects U.S. investment-grade corporate debt spreads to widen “in coming months” as Treasury yields push higher
• For deal updates, click here for the New Issue Monitor
• For more, click here for the Credit Daybook Americas

Europe

Primary market participants expect the SSA sector to maintain its dominance of weekly activity, according to a survey conducted by Bloomberg News on May 14. Public-sector borrowers have led sales for 16 out of 19 weeks this year, according to data compiled and analyzed by Bloomberg.

• Some 16 mandates hit screens, including an inaugural green bond from Air Liquide
• Other borrowers planning sales include engineering and technology company Technip Energies, which will hold investor calls on Monday and Tuesday ahead of an inaugural euro seven-year sale
• Covered bond supply is set to get a boost from Raiffeisen-Landesbank Steiermark and United Overseas Bank, while Spanish lender Cajamar is planning a Tier 2

Asia

Indian dollar bonds have been rebounding in recent weeks on bargain hunting after the Covid-19 crisis left them among Asia’s worst performers at times last month.

• Spreads on investment-grade Asian dollar bonds narrowed 2-3 basis points on Monday, according to traders
• There was mix of investment-grade and high-yield bond deals in the primary market on Monday, including HSBC Holdings Plc and National Australia Bank Ltd.
• China Huarong Asset Management Co. has reached funding agreements with state-owned banks to ensure it can repay debt through at least the end of August, by which time the company aims to have completed its 2020 financial statements, people familiar with the matter said

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