Fitch: AT&T Anti-Trust Delay Poses Risks for Investors

NEW YORK -- (BUSINESS WIRE) -- Fitch Ratings says the U.S. court decision to put off the Justice Department's upcoming anti-trust trial regarding At&T's $39 billion acquisition of T-Mobile USA could prove difficult for bondholders. Another delay in an already vexing transaction could potentially signal no deal, flagging event risk for debt holders.

Earlier this week, AT&T and the Justice Department were granted a delay in their antitrust case and last month AT&T formally withdrew its acquisition application from the FCC, saying it had set aside $4 billion to cover associated costs that would be owed to T-Mobile should the deal fall through. The FCC and Justice Department have challenged the deal from the onset, claiming it would decrease competition in the US wireless market.

If antitrust challenges prove too great and the acquisition is scrapped, we feel event risk for bondholders could remain high. Without the benefits of the transaction synergies, AT&T could increase company stock buybacks beyond moderate levels.

We would also have a negative view of uncertainty regarding AT&T's next move to acquire wireless spectrum and of breakup fees. AT&T's need to enhance its capacity could lead to a rise in capital spending and/or the acquisition of spectrum through other transactions. However, we would evaluate those negative factors in the context of the company's strong free cash flow and its capital spending flexibility.

In addition, we believe T-Mobile will continue to struggle to build its competitive position because it lacks the necessary spectrum to build out the latest 4G technology. If the deal falls through, we believe it would be increasingly difficult for T-Mobile to be independently viable and competitive with AT&T, Verizon, or Sprint.

A dropped deal could also have knock-on effects on the credit profiles of other issuers across the industry.

Conversely, if the deal is reworked before a scheduled hearing on January 18, the companies would likely have to offer more significant divestitures of assets as concessions to secure approval of the transaction. Even so, steps to reduce regulators' concerns in order to complete the deal may be in both companies' interests: AT&T would improve its spectrum position and parent Deutsche Telekom would achieve its aim of exiting the US. However, we feel the as yet unknown structure of a reworked deal could still lead to material cash outflows.

AT&T said on Tuesday that it is committed to working with Deutsche Telekom "to find a solution that is in the best interests of our respective customers, shareholders and employees," and added it was considering "whether and how to revise the current transaction to achieve necessary regulatory approval in order to deliver capacity enhancements and improved customer service that can only be derived from combining our two companies' wireless assets."

Fitch placed AT&T on Rating Watch Negative in March, with its IDR at 'A'.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.