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AT&T Aims to Reduce Debt Burden to De-Risk Capital Structure

AT&T Inc. T recently closed the sale of a secondary offering to improve its liquidity position and reduce the burgeoning debt burden through prepayment of upcoming debt maturities. The strategic move is likely to de-risk its capital structure as the company prepares to navigate through the coronavirus-induced global turmoil.   

The debt offering included Global Notes due 2028, 2032 and 2038 worth €3 billion in combined principal value and $12.5 billion worth of Global Notes due 2027, 2031, 2041, 2051 and 2060. AT&T generated a cumulative $15.8 billion from the secondary offering, proceeds from which were utilized to repay all the outstanding principal amount of six series of bonds totaling about $8.6 billion and term loans aggregating $6.3 billion.

Liquidity Position

As of Mar 31, 2020, AT&T had $9,955 million of cash and cash equivalents with long-term debt of $147,202 million compared with respective tallies of $12,130 million and $151,709 million by the end of fourth-quarter 2019. The company currently has a debt-to-capital ratio of 0.46 compared with 0.52 for the sub-industry. The times interest earned has decreased slightly over the past few quarters to 3.3 relative to 3.9 for the sub-industry.

Notably, AT&T was scheduled to retire $4 billion worth of stock under two accelerated share repurchase agreements. The company intended to retire about 250 million shares through April 2020. However, AT&T has now decided to cancel this stock buyback program due to the severity of the virus outbreak. The evolving nature of the contagious disease and its grave impact on the economy have forced the company to reconsider the buyback plan as it is yet to fathom the impact on its business. Management has also withdrawn its guidance.

Streaming Focus

In order to tide over the storm, AT&T is focusing on streaming services like AT&T TV and HBO Max. This is likely to create other avenues to monetize content while increasing ARPU (average revenue per user) through higher customer adoption. Powered by Android TV set-top box, AT&T TV offers a plethora of live TV channels, 500 hours of DVR storage space and 40,000 on-demand titles that can be streamed on a mobile device anywhere in the country. This is likely to enable users to either stream their favorite content on-the-go or record innumerable shows to watch later.

HBO Max offers about 10,000 hours of premium content, leveraging an extensive collection of exclusive original programs and the most sought-after shows from WarnerMedia’s vast portfolio of beloved brands and libraries. With an unrivaled bouquet of premium and exclusive content for an impressive direct-to-consumer experience across the age group, HBO Max will likely equip AT&T to play catch-up with avant-garde media firms like Netflix, Inc. NFLX, The Walt Disney Company DIS, Hulu and Amazon.com Inc. AMZN to secure a bigger pie of the streaming service market.

Fiber Connectivity

The company also envisions significant growth opportunities with extensive fiber connectivity and bundled offerings for businesses and consumers. AT&T is poised to benefit from the impending 5G boom. As the first carrier in the industry, the company has unveiled its 5G policy framework that will hinge on three pillars — mobile 5G, fixed wireless and edge computing. In order to have a seamless transition among Wi-Fi, LTE and 5G services, AT&T intends to deploy a standards-based nationwide mobile 5G network in 2020. Its 5G service entails utilization of millimeter wave spectrum for deployment in dense pockets, while it intends to deploy 5G on mid- and low-band spectrum holdings in suburban and rural areas. It believes that as the 5G ecosystem evolves, customers can experience significant enhancements in coverage, speeds and devices.

AT&T further anticipates gaining a competitive edge over rivals through edge-computing services that allow businesses to route application-specific traffic, where they need it and where it is most effective — whether in the cloud, the network or on their premises.

We remain impressed with the focused attempts of this Zacks Rank #4 (Sell) stock to maintain a competitive edge amid these turbulent times.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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