By Danielle Robinson and Joy Ferguson
NEW YORK, Aug 16 (IFR) - T-Mobile USA CEO John Legere's no
holds-barred approach to attacking the wireless stronghold of
dominant duo AT&T and Verizon in the US is working its magic in
the bond markets.
This week, about 150 bond investors poured several billions
of dollars into T-Mobile USA's order book for a USD500m
five-year non-call two offering, despite the fact that its 74%
owner, Deutsche Telekom, is looking to offload USD11.2bn of
bonds from its US subsidiary into the market.
DT has filed a shelf to sell the USD11.2bn of T-Mobile USA
debt it inherited from providing an inter-company loan. Another
headwind is the rumour that DT, having failed to sell T-Mobile
USA to AT&T, might consider DISH Network as a suitor.
That sort of hair on a credit would normally destroy its
chances of selling anything in the bond market, and especially
one in such an intensely competitive, low-margin sector as
Yet the deal not only attracted huge demand, but was priced
inside comparables and proceeded to jump a whole point in price
on the break, thanks to the stunning turnaround of the company
this year under the leadership of its feisty new CEO.
"CEOs are normally very reserved, but Legere is out there
bragging about T-Mobile USA's performance and bashing his
competitors - and it's working," said one credit strategist.
"He's really backing it up with a very impressive
Since taking the job last September, Legere has based his
strategy on pushing the buttons of AT&T and Verizon's aggravated
"By fixing the things that drive them mad, like contracts
and upgrades, and freeing them from the two-year sentences
imposed on them by our competitors, they are choosing the new
T-Mobile in unprecedented numbers," said Legere in a press
His bluster was backed up by news that T-Mobile gained 1.1m
new customers in the second quarter - including 685,000 contract
subscribers - its largest customer growth in four years and
compared with a loss of 557,000 a year ago.
This year, the company has also merged with MetroPCS, signed
up to offer iPhones and begun an upgrade of its network quality
and geographic reach.
The bond issue benefited from the earnings momentum, being
priced at par to yield 5.25%, down from guidance of 5.375% and
initial price thoughts in the mid-5.00% range. Pricing was
inside its outstanding 6.25% 2021 eight-year bonds, trading at
USD100.875 to yield 6.06%.
NOT A SPRINT
Once a name that traded wide to Sprint, T-Mobile now trades
tighter, with Sprint's unguaranteed 6.9% 2019s quoted at
USD104.25 to yield 6.00%.
"The deal went very well, and probably did better than
anyone expected," said one syndicate manager. "It's late into
August, we have rising rates and we've seen lacklustre
performance by other deals that were done earlier in the week."
Investors were willing to take a bet that DT is not planning
to shoot itself in the foot by dumping its USD11.2bn of bonds
into the market, and expect it will instead eke them out over
And some argue that the event risk is already factored into
its trading levels.
"With TMUS trading about 47bp wide of general BB credits,
the market is already pricing in a significant probability of
either a DISH transaction or a tough technical should DT sell
its TMUS bonds to the public," wrote Barclays.
Some investors also see better value in bonds issued by
Sprint and T-Mobile, which offer about five to six times the
amount of spread on an AT&T or Verizon bond.
"The question is, are you taking on five to six times more
risk in doing so? I don't think so," said Scott Kimball, senior
portfolio manager at Taplin Canida & Habacht, part of the BMO
Global Asset Management Group.
The new notes were quoted at 99.5-99.8 on Friday, pulled
down by the weak tone in secondary credit markets following a
spike in interest rates.