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”. I don’t know why the market isn’t more concerned.”
If AT&T were a rapidly growing company, the debt would raise some eyebrows but it isn’t growing – profit and revenues are shrinking. “We have never seen anything of this scale before. “The only way to describe the size of the debt is ‘terrifying’,” said Craig Moffett, a partner at research advisory firm MoffettNathanson. But the fact that such a request was deemed necessary is an illustration that AT&T’s debt is starting to become an issue for the market. And with a US$16bn bank loan that had been lined up to part-finance the purchase needing to be paid off, further bond sales are expected.ĪT&T had a suggestion for the funds it was meeting with: they could simply ditch their safety limits, freeing them up to buy even more debt. AT&T will inherit the debt of the media empire, taking its debt to US$180bn. The concentration limits problem would only grow worse once the Time Warner deal, which was approved on Tuesday, went through. Some funds had loaded up so much on AT&T debt that they were starting to hit concentration limits that restrict how much of a company’s debt they can take on.
In those three years, AT&T’s debt had doubled – to more than US$160bn.īut concerns were mounting that the US bond market, the deepest of them all, might be too small for what had become the world’s most indebted company.ĪT&T’s mounting debt, larger than that of most countries, had already begun to test the limits of the market.
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US bond funds had over the previous three years financed the biggest expansion in the company’s 137-year history, buying up one bond deal after another as it built up a war chest to first buy satellite TV provider DirecTV and then the Time Warner media empire. When AT&T visited some of its biggest bondholders late last year, it had an unusual request.
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