AT&T Bond Sale Of $22.5 Billion-Third Biggest Deal Ever

AT&T Ups Bond Sale to $22.5 Billion

Investor demand for investment-grade credit is only growing stronger, as evidenced by portfolio managers’ appetite for AT&T’s (T) huge bond sale on Thursday. Originally expected at $15 billion, the deal size was upped Thursday afternoon to $22.5 billion. That makes it the third-largest corporate offering on record, according to S&P’s LCD News. It comes behind Verizon Communications (VZ) $49 billion sales in 2013 and Anheuser-Busch InBev’s $46 billion deal in January 2016, LCD data show. Investors indicated a desire to buy $63 billion in the bonds, making the deal several times oversubscribed. The proceeds are intended mainly to help finance its $85 billion purchase of Time Warner (TWX). Full Story

“That really underscores the huge investors demand for investment grade credit,” says Todd Schomberg, a senior portfolio manager at Invesco, who participated in the sale. He notes this is probably the last time AT&T will be turning to the debt market for quite a while.

“Investors are comfortable with AT&T and are anditicapting that going forward it is going to be focused on integrating Time Warner and repairing the balance sheet, slowly paying down debt with cash flow over time,” says Schomberg.

Another reason for the strong demand: There haven’t been many big, M&A driven debt deals this year,” he says. “

The bond market is about to enter the 1^st stage of the bubble phase that will eventually help fuel the feeding frenzy stage in the stock market. Potentially two bubbles could pop simultaneously, which would provide the manipulators with room to prepare the stage for a bailout that will make all the other bailouts in history appear to be a joke. In the process, millions will be fleeced and those joining the ranks of the poor will swell. The next disaster is being designed to wipe out a lot of middle players that have grown too big for their breeches. These players fall into the several hundred million dollar ranges to the 10 billion dollar ranges. Thus, the carnage will be quiet severe. We don’t intend to be in the markets when this occurs; we want to be sitting on the sidelines with a few short positions that we will add to as the situation unfolds.

AT&T’s debt, bigger than most countries

“The only way to describe the size of the debt is ‘terrifying’,” said Craig Moffett, a partner at research advisory firm MoffettNathanson. “We have never seen anything of this scale before. If AT&T were a rapidly growing company, the debt would raise some eyebrows; but it isn’t growing – profit and revenues are shrinking. I don’t know why the market isn’t more concerned.”

Moody’s, which put AT&T on review for downgrade after the Time Warner deal was announced, warned late last year that its debt levels “could test the depth of the credit market”. So far, however, the market seems to have hardly blinked as the company piled on debt: its last foray into the US dollar market last July, for a US$22.5bn deal – the third-biggest US dollar corporate bond deal ever – drew US$60bn of orders.

CASH FLOODING OUT

But AT&T’s debt binge took place against a backdrop of cash flooding into US corporate bond funds, and there are now signs that trend is starting to reverse, as interest rate rises take effect.

The iShares iBoxx Dollar Investment Grade Corporate Bond ETF, the largest corporate bond ETF with more than US$800m of AT&T bonds, has seen net assets fall by almost a fifth since the end of last year. Full Story

AT&T Ups Bond Sale to $22.5 Billion

AT&T’s debt, bigger than most countries

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