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AT&T sets $6B bond sale
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March 10, 1999: 5:57 p.m. ET
Float could grow to record levels, leading a mob of other big corporate debt
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NEW YORK (CNNfn) - A looming $6 billion corporate bond offering from AT&T stunned the bond market Wednesday, driving speculation that the float could easily swell to record proportions when it prices later this month.
The communications giant filed with regulators in January to sell up to $10 billion in debt, saying it would use the proceeds to fund acquisitions and other purposes.
While AT&T (T) has so far shrouded the float in mystery, dealer gossip has pushed the size of the offering from a low figure of $5-6 billion to a high of $10 billion or even $13 billion.
The deal will likely be the biggest corporate debt offering ever, burying MCI WorldCom 's (WCOM) August sale of $6.1 billion in debt.
"I think the chances are better than 50/50 that they increase the size of the transaction and we hit $8 billion possibly," said Marion Boucher Soper, fixed-income securities analyst at Bear Stearns.
Soper said the size of the offering, plus the equity-market allure of Dow component AT&T, could help its appeal cross over to general investors.
"The rating agencies reacted to the merger with TCI very favorably," she said. "S&P actually affirmed (AT&T's) outstanding rating at AA- and Moody's was very generous as well. I think they'll do a pretty good marketing job over the next couple of weeks . . . if they price the deal right, it seems likely to succeed."
Borrowing on the future
In particular, analysts expect AT&T to use the debt sale to help finance its recently completed $55 billion acquisition of Tele-Communications Inc. (TCI) and retire other debts.
However, the company may use part of the cash raised to start a fresh stock buyback program, said Bruce Roberts, telecom analyst at Dresdner Kleinwort Benson, adding that the float could also help fund AT&T's post-merger cable telephony operations.
"We estimate through 2006 AT&T will need $12 billion to build out their local telephone plant over the cable system," he said. "The cable infrastructure right now is not equipped to provide services . . . caller ID, call-waiting, just a dial tone. It's quite an expensive proposition and we calculate that . . . they are going to create a substantial funding requirement to do that."
Roberts estimates that the bonds will price at a yield between 6 and 7 percent, which he calls "a pretty good price," when they go to market sometime in the week of March 22.
The tip of an iceberg
Although the AT&T deal looks set to be the biggest shark in the corporate debt pond, a growing number of big players are dipping their toes deeper in the water.
"The super-sized issue from AT&T reminds us of how . . . investor demand for long-term investment-grade corporate bonds is very strong," said John Lonski, Moody's bond market analyst. "Corporate America has more than offset (the) reduction in federal borrowing . . . brought on by the emergence of the federal budget surplus."
On Wednesday alone, Lucent (LU) brought $1.36 billion in 30-year debt to the market. The telecommunications manufacturer had originally planned to offer only $1 billion.
Mortgage consolidator Freddie Mac (FRE) is set to sell $3 billion in 10-year notes later this week, while companies ranging from Mack-Cali Realty (CLI) to Noble Drilling (NE) are queuing up to offer nearly $2 billion in investment-grade credit between them.
On the high-yield end, cable company Charter Communications Holdings LLC will offer $3 billion in junk paper on Friday, making it the third-largest junk debtor ever. 
-- from staff and wire reports
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AT&T Corp.
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