Comcast, AT&T Set To Become World's Most Indebted Companies With Over $350BN In Debt

At a time when the IMF estimates that more than 20% of the world's companies would be unable to cover their interest payments if interest rates moved sharply higher, Comcast and AT&T are poised to become the most indebted companies in the world following media megadeals that leave the two companies with little room to maneuver if profits fail to materialize, according to the Wall Street Journal.

Comcast

As WSJ points out, assuming both are finalized, the deals would leave the two companies with a combined $350 billion in bonds and loans, more than one-third of a trillion dollars in debt. The number is making some bond fund managers nervous, and some are saying they won't include Comcast or AT&T debt in their portfolios - unless they bear a suitably high yield.

"It’s a very big number," said Mike Collins, a bond fund manager at PGIM Fixed Income, which manages $329 billion of corporate debt investments. "It has fixed-income investors a little nervous and rightfully so."

But rather than looking at these deals as isolated examples, WSJ reminds us that companies only arrived at this level of corporate indebtedness following a decadelong surge in corporate borrowing, as companies - including these two telecoms giants - eagerly bought back their shares to appease investors, and financed these purchases with debt. Global corporate debt, excluding financial institutions, now stands at $11 trillion. Meanwhile, the median leverage for companies with an investment grade rating has increased by 30% since the financial crisis.

Debt

AT&T's now-closed deal to buy Time Warner has left it with nearly $200 billion in debt,  a leverage ratio that is just below the average for companies rated at the bottom of the investment-grade ladder (though to be sure, the company says it's leverage is significantly lower).

AT&T will have about $181 billion of debt because of the Time Warner purchase but other liabilities, including operating leases and postretirement obligations, amount to about $50 billion, Mr. Arden says. As a result, S&P estimates the company’s post-deal leverage at about 3.5 times earnings before interest, taxes, depreciation and amortization, or Ebitda. That is slightly below the 3.75 times leverage that S&P views as typical for comparable telecommunications companies rated triple-B-minus, the lowest investment grade rating.

...

AT&T calculates its leverage at 2.9 times Ebitda, but doesn’t include leases or postretirement obligations in the figure. The telecommunications firm forecasts returning to 2.5 times within four years, a person familiar with the company said.

The company has sought to reassure bond-fund managers by promising to a leverage ratio of 2.5 (by the company's calculation) within four years. But if ratings agencies do the unthinkable and stick Comcast and AT&T with (well-deserved) junk ratings, fund managers who are prohibited from holding below-investment-grade debt will be forced to preemptively dump the bonds. This worry has caused some fund managers to bail out of media and telecoms corporate debt entirely, thanks to the companies' typically high debt levels.

"The risk is that everyone wants to get out of the debt at the same time," Mr. Collins said. "That’s when it gets ugly." When oil prices plummeted in 2015, for example, the debt of some energy pipeline companies with low investment-grade credit ratings fell 15% in a matter of months.

Gene Tannuzzo, portfolio manager of a $4.3 billion debt fund for Columbia Threadneedle Investments, has halved his exposure to bonds of telecommunications and media companies over the past year because of their rising debt and headwinds facing the industries. He has sold out of Comcast bonds entirely but would consider purchasing debt backing the Fox purchase if it paid a high enough yield, he said.

S&P and Moody's - the two most important ratings agencies - cut their rating on AT&T's bonds on Friday to two notches above junk. And a cut and possible downgrade for Comcast would be expected if it closes a deal with 21st Century Fox (a deal that is also being pursued by Disney).

Meanwhile, projections released by the Fed after it announced its decision to raise the Fed funds rate last week showed that FOMC members raised their dots, resulting in an increase in the median expectation from one to two more hikes this year (likely in September and December).

Fed

And with the economic expansion now the second-longest in history, now certainly sounds like a sensible time to take on an unheard of debt burden.

Comments

Tarzan Escrava Isaura Tue, 06/19/2018 - 05:55 Permalink

Talk about naive...

I read, of the top 10 Parties in Brazil, the two overtly Socialist parties are sitting at 9th and 10th.

I'm curious, If socialism is the solution, why the most overtly socialist parties do so poorly with the People, why do they have to lie to get into power? 

Your only play is to dog the opposition, and spring your plans after getting power, like Obama.  How would his election have gone If he had been honest, and said you CAN'T keep your doctor?

 

In reply to by Escrava Isaura

Giant Meteor Herp and Derp Tue, 06/19/2018 - 06:20 Permalink

The black swan's swan ..

How Boom Turned to Bust

The great conceit of the 1990s was that previous experience counted for nothing: "The Internet changes everything." All the old rules needed to be torn up. But history has a way of taking revenge on those who think the past is irrelevant.

When it first broke into public view, the Internet seemed like an economic as well as a technological miracle. As consumers, Americans came to expect that the information and services they found online would be free, while as investors they believed that the Net would generate billions of dollars in profits. A miracle is exactly what it would have taken to realize both those expectations.

Right after the Internet changed everything, the dot-com boom collapsed in the classic pattern of a stock-market bubble, and many of those who had explained to old-timers why companies with no earnings could be worth billions were shocked to discover that the old rules still applied.

http://prospect.org/article/great-telecom-implosion

When it comes, you can be sure, nobody saw it coming ..

Now that most everything has been enronized with blessings, this may take awhile ..

In reply to by Herp and Derp

Idiocracy's Not Sure Tue, 06/19/2018 - 06:03 Permalink

im telling ya....if you take away the US credit card economy they will  be forced to make a lot of changes that they wont like....me personally I think it would be wise to actually have fiscal responsibility but unfortunately fraud is king. fraud is a way of life.

silverer Tue, 06/19/2018 - 07:20 Permalink

If those greedy scumbags raise your service rates more than the gov published inflation rate (which is understated), show 'em who is boss. Cancel for a year and head to the local library.

lynnybee Tue, 06/19/2018 - 07:49 Permalink

i'm doing my part.  after the unbelievably horrid way both my sister & i were treated, & lied to about prices, only to find our bills never reflected what we were repeatedly told, after hours on the telephone trying to settle bills ...... we both quit.   (just like G.M.), NO MORE AT&T EVER EVER for me.   (& never again a G.M. auto).    

Goodsport 1945 Tue, 06/19/2018 - 08:09 Permalink

Meanwhile cable subscribers keep getting shafted with high prices and pathetic service, again thanks to the Federal government and these sanctioned monopolies.

They broke up AT&T in the name of national security and competition and then allowed the industry to re-consolidate everything including the Internet and cell phone when those new industries emerged.  This nation was built on competition, and today there is none as Zerohedge pounds about daily.

The FCC gets thousands of complaints for the same infractions each year and the conflicted bureaucrats who sit there collecting fat salaries do nothing - except rotate to and from the companies they regulate.  Think of where all the outrageous sports salaries are coming from and it all traces back to TV deals and high cable prices paid by overtaxed and underserved consumers.

Companies like CONcast regularly break FCC rules with impunity.  Before I dumped them, they refused to port a line to another state that they did not serve.  It permanently crippled our small startup business.  I complained right to corporate and found all these anti competitive policies were dictated from the top at CONcast. It was just like dealing with the mafia. 

CONcast's primary business is pumping its stock up through phony contracts, buybacks, outrageous prices, poor service and growth through debt. Their execs have made out handsomely.  And governments shut up because it is a source of tax revenue that others collect for them.
 

Where's the problem?  Go to Opensecrets.com and see how many Reps and Senators are on the take through communication industry campaign donations.  Each year I get more and more disgusted with the Federal Government. 

One final word on the phony contracts.  All they do is lock the customers in.  The fees (including overhead disguised as fees) and taxes are allowed to increase annually.

Today you can't buy  a television that operates without cable.  All subscribers can do themselves right now is cut back by opting out of more costly package deals, demand the right to subscribe to only a few stations - unit pricing - refuse to renew contracts and hold their ability to change to the other local government sanctioned duopoly as a wedge.