AT&T Realigns Credit for Comcast Deal

AT&T is moving to renegotiate all or part of an $8 billion credit line in order to ensure its cable/broadband unit can merge with Comcast Corp .

The move, which the company detailed in a regulatory filing, comes after credit rating agencies downgraded the phone giant’s rating, effectively increasing its interest rate on borrowing costs by about $50 million.

Although AT&T hasn’t drawn on the $8 billion line, the arrangement’s provisions say the company’s credit rating on long-term debt needs to be at Baa1. Below that, its borrowing costs and equity offerings could be impacted, including financing terms related to the $71 billion (cash and stock) Comcast merger.

On May 29, Moody’s Investors Service lowered its rating on AT&T’s long-term debt to one notch below that provision, to Baa2 from A3. Moody’s cited a glut of capacity in the telecommunications sector, which has flattened prices on communications services and put pressure on AT&T’s pricing ability.

In addition, the continued erosion of AT&T’s long-distance business margins from Baby Bell companies such as Verizon and SBC Communications, which are encroaching with long-distance services of their own, weighed on Moody’s decision.

Standard & Poor’s Ratings Group and Fitch Ratings also have put the company on a “rating watch negative” pending the Comcast merger.

As a result of the downgrade, AT&T said it would replace or renegotiate
all or a portion of the $8 billion line, which expires in December 2002. The filing said it was working with a group of lenders to hammer out a line that wouldn’t impact its merger plans with Comcast, which should help fill its coffers with about $8 billion in cash once the deal goes through.

In addition, AT&T is poised to raise about $2.25 billion in cash after pricing a secondary stock offering at $11.25 per share Wednesday. The capital will help Ma Bell satisfy an obligation to purchase 69 percent of AT&T Canada that it doesn’t already own by 2003.

AT&T said it issued 200 million shares of common stock as part of the offering and may issue up to an additional 30 million if the underwriters exercise their over-allotment option in full. The offering was lead-managed by Credit Suisse First Boston, Goldman Sachs, JP Morgan and Salomon Smith Barney.

After closing at $11.65 Wednesday, shares of AT&T were down by 20 cents at $11.45 during late morning trading Thursday.