By Drew FitzGerald and Sam Goldfarb
Bidders spent a record $80.9 billion in a U.S. government
airwaves-license sale, capping a frenzied auction that will demand
a commensurate wave of borrowing in an already-indebted telecom
AT&T Inc., Verizon Communications Inc. and others competed
in the Federal Communications Commission's sale of C-band spectrum
rights -- a hot commodity for cellphone carriers seeking more
frequencies for 5G services. The sale ended Friday ahead of a
second phase that determines the specific frequencies each company
The public won't likely learn the names of the auction's winners
for several weeks, but Wall Street is already taking cues from
traditional network operators seeking loans or issuing bonds that
could be used to foot the bill.
AT&T is in talks with banks about a possible one-year loan
of around $14 billion and recently borrowed about $3.5 billion in
the short-term commercial-paper market, according to people
familiar with the matter. T-Mobile US Inc. raised $3 billion
through a high-yield bond sale earlier this month. Verizon is
widely expected to issue bonds in the coming weeks, analysts
The new debt this year adds to several billion dollars in bonds
that carriers issued in 2020 before the auction started. AT&T's
discussion with banks was earlier reported by Bloomberg News.
All told, the C-band auction will cost the winning bidders as
much as $96 billion after they cover obligatory payments to
satellite companies that are shifting their operations to make room
for cellphone service. That financial burden is more than double
the price of the previous FCC auction record, a $44.9 billion
contest that ended in 2015.
Some of the licenses in the latest auction could end up in the
hands of financial firms; cable-TV operators such as Comcast Corp.
and Charter Communications Inc.; and cellular-industry newcomer
Dish Network Corp.
Representatives for AT&T, Verizon and other registered
bidders declined to comment on the auction. FCC rules bar companies
that participate in the auction from discussing the process.
Telecom analysts expect the wireless industry's traditional
leaders to walk away with most of the licenses.
"AT&T and Verizon need to catch up," said Allyn Arden, a
debt analyst for S&P Global Ratings. T-Mobile's purchase of
Sprint Corp. last year gave it a cache of midrange frequencies that
can support the huge volumes of data expected to cross
fifth-generation, or 5G, networks. The latest federal auction gives
T-Mobile's rivals a chance to even the score.
Verizon, which sold $49 billion of bonds in 2013 to acquire full
control of its wireless business, is expected to spend the most
cash on the latest auction to snap up a valuable resource.
But S&P and other ratings services are giving the company
more leeway to spend without threatening its investment-grade
rating, which already enjoys a positive outlook that could lead to
an eventual upgrade.
AT&T could spend less than Verizon and still face trouble
convincing credit raters that its debt should maintain its current
ratings. S&P and Moody's Investors Service both rate AT&T's
bonds two levels above speculative grade.
The company, which borrowed $40 billion in 2016 before it
acquired media giant Time Warner, last reported net debt of about
$149 billion, a figure that will most likely climb if executives
spend billions more on spectrum. AT&T has been exploring a
potential sale of its DirecTV satellite business, among other
divestitures, The Wall Street Journal has reported.
S&P, in a recent report, said AT&T's debt-to-earnings
ratio could exceed its "downgrade threshold" if it bought $20
billion of spectrum. But forgoing a resource that wireless
companies use to keep their customers happy could prove more
AT&T finance chief John Stephens told a virtual Citigroup
investor conference earlier this month that executives were
confident after making "really significant progress in managing the
balance sheet, giving us a lot of runway to continue to invest, to
continue to pay a dividend, and to continue to pay down debt."
Ultralow interest rates could be driving bids higher than most
observers expected when the process kicked off in December. The
average yield on U.S. investment-grade corporate bonds was 1.85% on
Friday, according to Bloomberg Barclays data, just above its
all-time low of 1.74% set at the end of last year. The average
yield was around 2.9% at the time of the FCC spectrum auction in
"That gave telecom companies some confidence to be aggressive,"
said Davis Hebert, a senior analyst at debt-research firm
CreditSights. "If they got stuck with a larger bill than
anticipated, the debt market would still be relatively
The extra yield, or spread, that investors demand to hold
telecom bonds over U.S. Treasurys has ticked up as they anticipate
additional borrowing to fund the auction purchases.
Verizon's 2.875% notes due in 2050 traded last week with a 1.17
percentage point spread, up from 1.03 percentage points in early
December, according to MarketAxess. The spread on AT&T bonds
due in 2053 has climbed to 1.87 percentage points from 1.67
percentage points during that span.
Write to Drew FitzGerald at email@example.com and Sam
Goldfarb at firstname.lastname@example.org
(END) Dow Jones Newswires
January 17, 2021 08:14 ET (13:14 GMT)
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