AT&T finds new way to help grind down its debt mountain

Bloomberg

AT&T Inc.’s obsession with paying down debt has led to some financial creativity.
Right before the end of 2019, AT&T took a collection of cell-tower rent payments that it will receive in the future, rolled them into a subsidiary, then sold shares of the unit to investors for $6 billion.
The new entity is called AT&T Investment & Tower Holdings LLC, and the preferred shares pay as much as 5% annually, according to a filing last month. The proceeds will go toward general purposes and paying down debt, AT&T said.
The move is the largest in an ongoing effort by AT&T to turn assorted assets into cash that it can use to whittle away at its borrowings. AT&T has set a goal to lower its leverage ratio to between 2 and 2.25, a target it promised shareholders, including activist investor Elliott Management Corp.
In this case, with the tower receivables, AT&T raised $6 billion up front, which requires an interest payment of 4.75% to 5%. While that’s a higher interest rate than nearly any loan AT&T could have received, the one significant advantage is that the $6 billion doesn’t add to its $165 billion debt pile.
“This is a bit of a surprise for a high-grade-debt company like AT&T,” said Dave Novosel, an analyst with Gimme Credit.
AT&T representatives declined to comment on the tower-receivables entity, citing a quiet period ahead of its earnings report later this month.
AT&T’s mountain of debt reached $200 billion after its 2018 purchase of Time Warner. The deal was part of the phone company’s strategy to transform into a modern media colossus. In the past year, the Dallas-based company has sold at least $7 billion worth of assets. Some were easy castoffs, such as its stake in Hulu and its office space in New York’s Hudson Yards.
It’s all part of the plan AT&T Chief Financial Officer John Stephens pitched anew to investors earlier this month at a Citigroup conference in Las Vegas.
“I’ve got to find some assets to monetize, whether it’s selling out Hudson Yards or selling Hulu or whether it’s finding these tower-company receivables,” Stephens said. AT&T has to “go out and figure out a way to monetize those things that people didn’t pay much attention to. That was a significant part of what we did in the fourth quarter.”
The timing was ideal if AT&T wanted to stay below the radar, Novosel said.
“December is a time when people are focused on other things,” he said. “It’s a good time to avoid attention.”