Rumors that AT&T was shopping for a loan to pay for C-band spectrum have proven true. AT&T filed an SEC Form 8-K, indicating that it has secured a $14.7 billion term loan credit with Bank of America. AT&T’s new loan is available for a single draw at any time before May 29, 2021 with maturity coming one year after borrowing.
The SEC document says the proceeds of the loan will be used for general corporate purposes, which may include “financing acquisitions of additional spectrum.”
The FCC’s C-band auction ended its first phase in mid-January with a record-breaking $80.9 billion in bids for the spectrum. It made available licenses for 280 megahertz of spectrum in the 3.7-3.98 GHz portion of the C-band.
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Analysts have agreed that both AT&T and Verizon needed to bid large for the mid-band spectrum to ensure capacity and coverage of their new 5G networks. They've pointed out that spectrum is a limited resource that traditionally goes up in value, similar to real estate.
The analysts at New Street Research have most recently estimated that AT&T would spend $24 billion on C-band, with Verizon estimated at $29 billion and T-Mobile at $13 billion. Meanwhile, analysts at Cowen have estimated AT&T’s C-band spend at $20 billion; Verizon’s at $35 billion; and T-Mobile at $10-15 billion.
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In a research note last week, the New Street analysts led by Jonathan Chaplin said that more debt will make it tough for AT&T to hit its 2.25x leverage commitment to Wall Street by the end of 2022. But they said, “AT&T is far better off with higher leverage and more spectrum than the reverse. It would have been a colossal mistake to underspend in this auction. None of the carriers can do without 3 GHz spectrum.”
Recon Analytics principal Roger Entner said that if AT&T needed to incur more debt, “now is the time to go into debt, especially for spectrum they really need and with interest rates so ridiculously low.”
Entner said that based on disclosures in its most recent earnings call, AT&T’s entire debt portfolio is currently subject to interest of around 4%, after the company refinanced a lot of its debt to take advantage of historically low interest rates.
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He noted that as of December 31, 2020, AT&T had $9.7 billion in cash. The addition of $14.7 billion would give AT&T more than $24 billion to spend on C-band. “I would say they probably spent around $20 billion,” said Entner. “They still need some money to buy stamps.”
He also thinks AT&T might turn its Bank of America loan into a bond sometime during 2021. “This is like a bridge loan,” said Enter. “I wouldn’t be surprised if AT&T turned this $14.7 billion loan into a 30-year note.”