T-Mobile US is selling its first-ever bond backed by customer phone loans, a move that helps diversify its funding sources as it digests its 2020 purchase of competitor Sprint.
The telecom giant, of which Mike Sievert is CEO, has launched an offering of $842 million in asset-backed securities. Of that, the company is willing to sell $750 million to investors at a spread of 90 basis points above the interpolated curve, while the rest will remain unbid.
The bond sale follows a path followed by competitor Verizon Communications, which began issuing similar securities backed by device payment plans in 2016. To date, Verizon’s ABS bonds have encompassed the entire market for such securities, according to data compiled by Bloomberg News.
The phone plan-backed bond market is at an all-time high this year. Issuance totals $3.7bn to date – without the sale of T-Mobile – compared to $4.4 billion n for the full year 2020. T-Mobile’s issuance would bring the balance sheet to approximately $4.5 billion.
“Verizon has been able to increase the maturity of this sector with stable performance over time, and I think that has really helped evolve this niche consumer ABS sector into something that’s a bit more open to investors is,” said Ian Rasmussen, managing director of asset-backed securities at Fitch Ratings, in an interview.
Fitch and Moody’s Investors Service rate the T-Mobile transaction and expect to rate the largest tranche ‘AAA’. RBC Capital Markets is leading the bond sale along with Barclays and Mitsubishi UFJ Financial Group.
The money raised will help T-Mobile diversify its funding sources after it took on a large debt load to pay for its April 2020 acquisition of Sprint and to buy spectrum rights. Spectrum is critical to building wireless networks.
Officials from T-Mobile and the banks that arranged the transaction declined to comment.
T-Mobile has had a hot streak lately. Subscriber growth has picked up even after Sprint’s purchase gave it a solid place among the top three U.S. wireless carriers.
The stock price is soaring even as rivals Verizon and AT&T struggle, helping to make the company a favorite with hedge funds.
The company was recently upgraded to investment grade by S&P Global Ratings, having been given a blue-chip rating by Moody’s earlier this summer. Fitch also rates the company BBB-.
AT&T said in July that more of its customers are defaulting on their bills, a risk for a telecom company if economic growth slows.
If T-Mobile faced earnings pressure and possible downgrades in corporate credit ratings, Securitis ation could be violated, Fitch said in its presale report.
The collateral looks safe for now. The loans that secure Securitis ation are from T-Mobile and have an average FICO score of 706, according to the report.
https://www.independent.ie/business/world/t-mobile-issues-its-first-bond-backed-by-us-customer-phone-loans-42040854.html T-Mobile issues its first bond backed by phone loans from US customers