T-Mobile to raise new debt, likely for AWS-3 spectrum auction

T-Mobile US (NYSE:TMUS) plans to raise new debt, most likely to fund purchases of spectrum in the forthcoming AWS-3 spectrum auction, which will begin in November.

T-Mobile said it plans to offer senior notes due in 2023 and in 2025 in a registered public offering. The carrier did not say how much it plans to raise via the offering. In a statement, T-Mobile said it expects to use the proceeds for general corporate purposes, "which may include capital investments, acquisition of additional spectrum and repayment of certain indebtedness."

However, in a filing with the Securities and Exchange Commission on the offering, T-Mobile made plain that the AWS-3 auction, which starts Nov. 13, is top of mind. "Because of the importance of acquiring additional spectrum to our efforts to expand and improve our network, we may use the net proceeds, or a portion thereof, to acquire spectrum," the company noted. "We routinely evaluate spectrum acquisition opportunities, including both government auctions and private transactions. We intend to participate in the FCC's upcoming auction of AWS-3 spectrum, and if we are successful in the auction process, we anticipate that a portion of the net proceeds of this offering would be used to acquire such spectrum."

Ratings agency Moody's rated both debt offerings as "Ba3" in its ratings system, and the agency expressed optimism for the company to have "continuing solid execution as a result of enhanced scale, a competitive device lineup, accelerated network investment which improves the customer experience and reduces churn and a new, aggressive pricing structure for smartphones. In addition, a strong liquidity profile and valuable spectrum assets also provide credit support."

However, Moody's noted that T-Mobile could face pressure if "the company's leverage approaches 4.5x and free cash flow drops below 2% of total debt. This could occur if EBITDA margins come under sustained pressure, declining to below 30%. In addition, deterioration in liquidity could pressure the rating downward."

In July the FCC set a total reserve price of $10.587 billion for the airwaves it will auction in the AWS-3 auction. The commission set an aggregate reserve price for the 1695-1710 MHz band of around $580 million and a separate aggregate reserve price for the paired 1755-1780 MHz/2155-2180 MHz bands of approximately $10.07 billion.

The 1695-1710 MHz band will be unpaired spectrum used for low-power uplink operations. The 1755-1780 MHz band will be licensed for low-power uplink operations and will be paired with the 2155-2180 MHz band for downlink operations.

T-Mobile is expected to bid in the auction, along with Verizon Wireless (NYSE: VZ), AT&T (NYSE: T), Dish Network (NASDAQ: DISH) and many other smaller carriers.

In its SEC filing, T-Mobile also acknowledged that French mobile and Internet company Iliad is still interested in pursuing a deal for T-Mobile. Iliad CFO Thomas Reynaud said the company may make an improved offer by working with unnamed partners.

"We cannot at this time predict whether Iliad S.A. and/or others will make any new or further proposal for a transaction with us or what the outcome of any such proposal would be," T-Mobile noted. "We cannot rule out the possibility that Iliad S.A or another party could submit a new or improved offer that would lead to negotiations and possibly to an agreed transaction."

For more:
- see this SEC filing
- see this T-Mobile release

Related Articles:
Iliad remains open to improving its bid for T-Mobile US
Report: DT willing to part with T-Mobile if it gets an offer of $35 per share or more
Cox president: We're not going to bid for T-Mobile
DT's chief says there are no good offers for T-Mobile US
AWS-3 auction winners could face lots of spectrum-coordination hitches
FCC sets rules for $10.5B AWS-3 auction; T-Mobile, Dish denied request to split spectrum

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