AT&T Wireless Group jumped into the very active debt capital market last week selling off $6.5 billion worth of senior unsecured notes, the largest private bond sale ever by a U.S. company.
The bond sale followed Qwest Communications International Inc., Sprint Corp. and Verizon Communications, each of which sold at least $1 billion of bonds already this year. According to Thomson Financial Securities Data, companies have sold more than $126 billion in bonds since the beginning of the year.
The sale, arranged by Merrill Lynch & Co. and Salomon Smith Barney, included $1 billion of 7.375 percent five-year notes yielding 7.359 percent; $3 billion of 7.875 percent 10-year notes yielding 7.926 percent; and $2.5 billion of 8.75 percent 30-year bonds yielding 8.758 percent.
Many analysts were surprised by the high yields being offered by the country’s third-largest wireless operator for the bonds, but noted they were probably necessary in light of the other telecommunication bond offerings this year.
“The levels seem fairly attractive for the credit,” Philip Olesen, executive director in corporate bond research at UBS Warburg L.L.C., told Reuters before the offering. “Companies need to wave some pretty fancy pricing to entice investors into these telecom deals. You need to make it worth investors’ while.”
AT&T originally had planned to offer between $4 billion and $5 billion in the bond sale, but increased the amount days before the offering last Thursday. Proceeds from the offering are expected to be used by AT&T Wireless to fund expansion.
“Over the next three years, AT&T Wireless will need significant financing to support capital requirements related to the recent spectrum auction, repayment of inter-company debt to AT&T, growth, enhanced network quality and deployment of new data products,” said Standard & Poor’s in a statement.
S&P affirmed its triple-B long-term corporate credit rating and A-2 short-term corporate credit rating with a stable outlook on AT&T Wireless. Moody’s Investor Services placed a Baa2 rating on AT&T Wireless’ debt, its second lowest investor rating, with a stable outlook. As of the end of 2000, AT&T Wireless’ total debt outstanding was about $5.5 billion.
“AT&T Wireless’ rating reflects its competitive market position, high average revenue per user compared with the industry norm, and experienced management,” S&P said. “These factors are somewhat offset by the company’s low [earnings before interest, taxes, depreciation and amortization] margin, which is a function of a fairly high cost structure, and the need for financing over the next three years to support capital requirements.”
AT&T Wireless announced late last year it would overlay its current TDMA-based network with a GSM network as it geared up for next-generation wireless services. The company also received a $6.2 billion investment from Japan’s NTT DoCoMo for a 16-percent share of the company, and is liable for $2.9 billion to the Federal Communications Commission for licenses it won in the recent wireless spectrum auction.
AT&T Corp., AT&T Wireless’ parent company, sold $6 billion of bonds last July.
AT&T Wireless stock closed down 4 percent last Thursday at $20.15 per share on below-average trading volume.
