Fitch downgraded American telecom major AT&T’s issuer ratings to BBB+ from A- with a stable outlook. They also assigned a BBB+ rating to their $14.7bn senior unsecured delayed draw term loan. Fitch said that the downgrade reflected expectations that “leverage will be sustained above Fitch’s previous negative rating sensitivity threshold of gross core telecom debt/operating EBITDA of 2.5x for a protracted period.” They also stated that AT&T’s credit profile is affected by its spending on the C-Band spectrum auction where AT&T won licenses worth $23.4bn, out of just over $81bn spent by all wireless operators in the entire auction. Spend on the spectrum deployment is expected to be $6bn-$8bn mostly in 2022-2024. Impact was also felt in their Warner Bros’ theatrical and TV revenues due to delays caused by the pandemic. In terms of leverage, Fitch expects core telecom leverage to widen to 3.5x in 2021 due to the auctions, rising from 2.8x and 3x in 2019 and 2020 respectively. They did note that if leverage falls below 2.5x, that could lead to an upgrade. Fitch noted liquidity was strong with cash balances of $9.7bn in 2020. The company has bond maturities of $3.3bn due this year, $5bn in 2022 and $7.6bn in 2023.
AT&T’s 3.5% 2061s were down 0.8 to 87.1, yielding 4.2% and their 3.3% 2052s were down 0.9 to 86.96, yielding 4.04%.
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