T-Mobile USA debuts in US high-yield with $500m deal
Aug 14 (IFR) - T-Mobile USA made its debut in the US high-yield market on Wednesday with a US$500m debt offering that allowed investors take a bet on the carrier's ability to find a niche in the fiercely competitive US wireless telecom business.
The five-year non-call two senior notes offering, sole-led by Deutsche Bank, was priced at par to yield 5.25%, 12.5 basis points tighter than official price talk of 5.375% and about 25bp better than initial whispers in the mid 5.00% range.
Investors were offered the opportunity to buy short-dated bonds from a borrower that has just turned in strong second-quarter results that showed subscriber growth that exceeded the market's expectations.
Despite the fact that AT&T and Verizon have clearly dominated the US wireless market, there are investors who see far better value in bonds issued by Sprint and T-Mobile.
Scott Kimball, senior portfolio manager at Taplin, Canida & Habacht, part of the BMO Global Asset Management Group, said investors can get five to six times the amount of spread by investing in the smaller wireless companies, rather than the large players.
"The question is, are you taking on five to six times more risk in doing so? I don't think so.
"My view on this sector is that you have to know what you are doing, but that applies just as much to investing in high-quality names as the low-quality ones. AT&T is a very solid investment grade core holding in a portfolio, but it has US$50-$60bn of debt outstanding and about half of its balance sheet is goodwill. In telecommunications, goodwill really isn't worth very much."
T-Mobile USA, rated Ba3/BB, still trades about 47bp wide of general Double-B credits, according to Barclays.
Some analysts also view it as a better bet than buying Sprint, which has huge funding requirements and the high likelihood of significant bond issuance in the near future.
"We estimate Sprint's funding gap at about US$7bn, and note that this would not include any issuance to refinance Clearwire debt," said Barclays in a research note.
T-Mobile USA has aggressively expanded the prepaid MetroPCS brand to new geographic locations following the completion of its merger with Metro in May.
T-Mobile USA does, however, have its fair share of event risk.
Deutsche Telekom remains the owner of 74% of T-Mobile USA equity and the holder of US$11.2bn of its bonds. The German carrier has filed a shelf to register that outstanding debt and could potentially sell the notes to the public.
"While we do not expect DT to flood the market with TMUS debt, even a more gradual disposition could create a challenging technical for the credit," wrote Barclays.
There is also the possibility that Deutsche Telekom could sell its remaining stake in T-Mobile USA to the DISH Network.
Before pursuing Sprint, Dish reportedly had preliminary discussions about a possible merger, although John Legere, CEO of T-Mobile, recently said the company was not talking to Dish Chairman Charlie Ergen.
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