Wall Street’s $40b loan offer to fund AT&T deal

Business Monday 24/October/2016 13:12 PM
By: Times News Service
Wall Street’s $40b loan offer to fund AT&T deal

New York: Wall Street banks are writing some of their biggest cheques ever to fund AT&T’s takeover of Time Warner as they seek a bonanza of fees. But there’s a dose of concern that the $40 billion loan pledge may get caught up in a regulatory impasse.
JPMorgan Chase has pledged $25 billion of the financing, with Bank of America providing the rest, according to a person with knowledge of the matter who asked not to be identified without authorisation to speak publicly.
The lending commitment gives the banks an advantage on bond offerings that would find willing buyers among yield-starved investors, analysts say. At the same time the banks face the risk that the deal, along with a chunk of their balance sheets, would be tied up if regulators delay approving the deal.
"This could be an especially lucrative deal for the banking industry; they’re going to make a lot of money if the deal gets done” said Bert Ely, a banking consultant at Ely & Co. "The numbers on the credit piece look big, but I’m sure the credit risk will be spread widely. The big uncertainty hanging over this will be the battle for regulatory approval and what lender protections are included if the deal fails.”
T-Mobile failure
A failed megadeal wouldn’t be the first for AT&T. In 2011, the company abandoned its takeover of T-Mobile USA because of regulatory hurdles. JPMorgan had lined up $20 billion to finance that deal.
The $25 billion JPMorgan has promised to lend AT&T for the Time-Warner takeover is its biggest commitment for a deal, according to a person with knowledge of the matter. JPMorgan brought in Bank of America as its partner on Thursday and plans to syndicate the loan to other banks within weeks.
The loan is structured as an 18-month bridge loan, a type of financing that a borrower repays by selling bonds.
AT&T said that it’s seeking to hang onto its investment-grade credit rating after the deal is completed. But the lenders themselves are taking on other risks by using their balance sheet resources, according to Charles Peabody, a bank analyst at Compass Point Research & Trading.
"That is dangerous because this deal could be hung up in antitrust wranglings for a long time,’’ he said. JPMorgan and Bank of America won’t be protected if credit markets swing and they can’t sell the debt for what they had anticipated, he said.
Jessica Francisco, a JPMorgan spokeswoman, and Thomas Rottcher, a Bank of America spokesman, declined to comment. AT&T, based in Dallas, didn’t immediately reply to an e-mail and calls on Sunday.
The deal caps AT&t chief executive officer Randall Stephenson’s vision to expand the company into media and entertainment as its wireless business matures. Gaining premium cable channels HBO, CNN and the Warner Bros. studio means AT&T becomes a content owner rather than just a distributor of video.