By Mike Cherney
AT&T Inc. is selling $17.5 billion in bonds Thursday to help
pay for its acquisition of DirecTV, the latest giant debt sale amid
low rates and an uptick in deal-making.
The offering ranks as the third largest corporate-bond sale on
record, and it is the second largest this year, behind Actavis
PLC's $21 billion deal in March. Overall, Verizon Communications
Inc. still holds the top spot, with a $49 billion deal in September
2013.
The AT&T deal adds to this year's record pace of debt sales,
as companies seek to take advantage of low borrowing costs before
an expected increase in interest rates by the Federal Reserve later
this year. Through Wednesday, high-grade companies had sold about
$419 billion of bonds in the U.S. this year, the most on record,
according to data provider Dealogic.
Investors piled into AT&T's offering, at one point
submitting roughly $68 billion in orders for the new bonds,
according to an investor following the sale. Buyers said they were
enticed in part because the new bonds, which will mature in five to
31 years, offered more interest than the company's existing
debt.
"We think it's a reasonable entry point for AT&T," said Jon
Curran, a portfolio manager at Standard Life Investments, which
oversees $383 billion and put in an order for the new AT&T
bonds. "This is an example of a large bond deal that offers good
value."
AT&T said it would redeem some of the bonds at a premium if
the $49 billion DirecTV merger isn't completed by Nov. 30. But the
company said earlier this week that it expects the deal to get
final approval from regulators and close this quarter.
Investors said they expect more companies to tap the bond market
in the coming months, to lock in low interest rates before the Fed
makes a move. The Fed has held its benchmark short-term rate at
near zero since 2008, but some analysts say the central bank could
raise rates this year as the U.S. economy heats up.
Investment-grade U.S. corporate bonds have offered a total
return, including price changes and interest payments, of 2.3% this
year through Wednesday, according to Barclays data. That is higher
than the 1.4% total return for U.S. Treasurys.
Collin Martin, director for fixed income at the Schwab Center
for Financial Research, said his firm is recommending investors
take an overweight position on investment-grade U.S. corporate
bonds. He cited healthy corporate balance sheets and a manageable
debt burden in the near term.
"The fundamental picture is pretty good," Mr. Martin said.
Write to Mike Cherney at mike.cherney@wsj.com
Access Investor Kit for AT&T, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US00206R1023
Access Investor Kit for DIRECTV
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US25490A3095
Access Investor Kit for Verizon Communications, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US92343V1044