The deal was notable for its size as well as its timing, two factors that meant success could not be taken for granted. Yet ultimately the quality of the issuer, and the promise of more lucrative further down the line, carried the day, ensuring AT&T’s US$39bn bridge loan was well received. Michelle Sierra reports.
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In March, the US investment grade loan market proved its depth and resilience when AT&T announced its plans to acquire rival T-Mobile from Deutsche Telekom for a hefty sum of US$39bn.
The March 20 announcement took the market by surprise. Only a few days previously a massive earthquake in Japan had set market nerves on edge. Even more surprising was the proposed financing package: a US$20bn bridge loan. The 18-month pledge for a 364-day loan was fully underwritten by financial advisor and sole bookrunner JP Morgan. It stood to be the second-largest bridge loan in US history, after Pfizer’s US$22.5bn bridge in March 2009. A Single A credit, the loan was not considered high risk, but US$20bn was a hefty sum that JP Morgan was not expected to retain.
On March 31 the syndicate was formed. JP Morgan was joined at the top by the top tier banks within the company’s existing revolver: Bank of America Merrill Lynch, Barclays Capital, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley MUFG, RBS, UBS and Wells Fargo.
Many banks considered AT&T to be a rare opportunity to make money in the investment-grade market. Underwriting fees for bridge loans tend to be richer than those paid for regular roll-over transactions. But their main goal was to ensure their place on the bond sale that will ultimately take out the bridge loan, for which there will be a large payday with no need to commit capital.
Following syndication, JP Morgan held on to on 10% – or roughly US$1.8bn. Joint lead arrangers Bank of America Merrill Lynch, Barclays Capital and Citigroup also landed US$1.8bn. Co-arrangers BNP Paribas, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley MUFG, RBS, UBS and Wells Fargo took home US$1.6bn each. The bridge was not syndicated further.
The AT&T bridge will pay 75bp over Libor if the company draws on its new loan. If the facility remains undrawn, the company will pay a commitment fee of 8bp. The loan also includes duration fees and a maximum debt-to-Ebitda covenant ratio of three times.
The L+75bp margin was the tightest margin for a bridge loan since the credit crunch. It was, however, understandable for a solid investment grade borrower, with long-lasting banking relations and a market capitalisation of US$181.5bn. A different A-rated name would have expected to pay a ballpark margin of L+100bp-112.5bp depending on size and deal dynamics, bankers said at the time.
By way of comparison, in late December 2008, A-rated Verizon paid a hefty L+300bp for a US$17bn 364-day facility that backed its acquisition of Alltel. Due to its size and the challenging market conditions, the syndication process was slower. As an additional incentive, the company had to offer a 200bp upfront fee. A total of 12 banks also joined that credit.
AT&T hasn’t come to the bond market yet to take out the bridge loan. The company borrowed money through bonds in April, but the proceeds went to repay outstanding debt due this year. AT&T printed a US$3bn offering of five-year and 10-year notes, with Bank of America Merrill Lynch, Citigroup, Goldman Sachs and Wells Fargo joint books on the trade.
A noticeable absence from the group was JP Morgan, which had provided the initial sole commitment to the acquisition financing. A bank that puts itself on the line for US$20bn would definitely have been guaranteed a slot, had this been related capital markets business.
Whispers surfaced at Treasuries plus 100bp–105bp on the five-year notes and plus 125bp–130bp on the 10-year portion. Price talk came tighter, at the plus 100bp and 120bp areas, respectively. Ultimately, the US$1.75bn five-year had a 2.95% coupon and printed at plus 97bp and the US$1.25bn 10-year had a 4.45% coupon and printed at plus 115bp.
Closing of the T-Mobile acquisition is expected within the next 12 months and is subject to regulatory approvals. In the event the deal does not close, AT&T would be required to pay a breakup fee of US$3bn.