T-Mobile borrows $19bn to fund Sprint takeover

T-Mobile borrowed $19bn on Thursday to fund its $66bn purchase of US telecoms rival Sprint, taking advantage of red-hot funding markets for high-quality corporate bonds.

The debt offering, the second-largest corporate bond sale this year, will be used to repay a loan T-Mobile had drawn down just days earlier that its lenders across Wall Street had been forced to fund themselves given the market turmoil, according to people briefed on the matter.

Bankers leading the bond offering at Barclays, Deutsche Bank and Goldman Sachs received roughly $65bn of orders from investors for a piece of the $19bn of bonds, underscoring the demand for investment-grade debt, two of the people said.

The borrowings, which will cost T-Mobile about $750m a year in interest expense, included new five, seven, 10, 20 and 30-year notes. While investors demanded higher premiums to purchase the debt, the drop in Treasury yields has helped lower T-Mobile’s overall borrowing costs.

The $7bn of new 10-year debt priced with a premium of 337.5 basis points over a similarly maturing Treasury on Thursday, far above the 209bp “spread” investors demanded for a 10-year bond T-Mobile issued in 2018. However, the coupon on the new 10-year bond was 88bp lower than the 2018 bond.

While T-Mobile is junk rated by both S&P Global and Moody’s, a sign of the riskiness of the company’s business, the $19bn borrowing was secured by some of the wireless carrier’s assets winning the bond an investment grade opinion from the credit rating agencies.

The company only this week closed on its takeover of Sprint, almost two years after the groups and their respective owners Deutsche Telekom and Japan’s SoftBank clinched the deal. T-Mobile had faced opposition from a group of US states who opposed the deal on competition grounds.

T-Mobile is the latest well-known group to tap credit markets for cash, with its $19bn bond offering landing on the heels of a bumper first quarter of debt issuance. Blue-chip groups across the US have raced to raise capital as the coronavirus pandemic has depressed business activity.

Companies borrowed more than $500bn through the investment grade bond market in March, a record, according to the data provider Refinitiv. The flood of borrowings followed a long stretch where companies had been shut out of debt markets.

Yields on investment grade corporate bonds have started to fall in a sign that the strain on the asset class is subsiding. Investors have also started to shift back into some investment grade bond funds after the Federal Reserve’s announcement that it would buy higher-rated corporate debt in an unprecedented move.

Lower-rated companies are still facing difficulty in raising needed financing and they will not be helped by the Fed’s move.

“There is no doubt that the Federal Reserve support has provided confidence to the investment grade market,” said Andrew Forsyth, a portfolio manager at BNP Paribas Asset Management. “High-yield does not have that support, so I am much more concerned there . . . especially as more downgrades flood into the space.”