The Long and Short
AT&T debt should compress closer to Verizon
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
AT&T moved one step closer to merging its WarnerMedia business with Discovery Inc. (DISCA) as the required waiting period to complete the combination has expired without action by regulators. While the combination with DISCA creates one of the largest media companies globally, it sets the stage for T to reduce debt and hit its leverage target ahead of previous expectations. The overall debt reduction should serve as a catalyst for T spreads to collapse closer to those of Verizon (VZ: Baa1/BBB+/A-).
Exhibit 1. T Curve vs. VZ Curve (1Y-30Y)
Source: Bloomberg TRACE; APS
The deal is expected to close in the second quarter this year and provide T with roughly $40 billion of proceeds to reduce debt. Given T’s continued focus on debt reduction and explicit comments on reaching its 2.5x net leverage target by the end of 2023, T could get most of its debt reduction completed by repaying debt maturities in 2022 and 2023, including the repayment of terms loans. T’s leverage has the potential to fall below VZ’s. The most value sits in the back end of T’s curve as the trading differential is 20 bp to 30bp wide to VZ.
T’s Leverage Could Fall Below VZ’s
While VZ maintains a net leverage target in the 1.75x-2.0x range, management has noted that they don’t expect to achieve that goal until 2025-2026. VZ ended fiscal 2021 with net leverage of 2.8x, which was in line with guidance provided at the company’s Investor Day. VZ expects to use free cash flow after dividends to continue to reduce debt. Network investments may limit its ability to repay debt as capital expenditures continue to rise. Furthermore, the dividend consumes roughly $10.5 billion annually. VZ also has minimal debt maturing through 2023 ($2.5 billion), which means it would need to execute tenders or make-wholes to reduce debt meaningfully in order to reduce leverage.
Should the WarnerMedia deal be consummated on time, we would expect T management to get underway in reducing net debt relatively quickly. We note that approximately $1.6 billion of Time Warner debt that was not exchanged will travel with the WarnerMedia separation. Additionally, roughly $13 billion of AT&T debt will be exchanged into new WarnerMedia debt. That leaves cash of roughly $23.4 billion-$24.4 billion, after working capital adjustments which Discovery noted on its recent earnings call was currently estimated to be in the $4.0 billion-$5.0 billion range, for further debt reduction.
Maturity Profile Supports Reduction of Over $20 billion of Debt by FYE23
We note that through 2023, T has approximately $23 billion of debt maturities which includes two of its three existing term loans, as seen in Exhibit 2. That means that T could execute more than 90% its expected debt reduction from the cash from the transaction through maturities alone. This would alleviate the company’s need to execute a large tender offer requiring them to pay early tender premiums and/or premiums above par. While we still expect T to look to execute tender offers, T may look to target higher coupon debt or look to attack maturity walls to limit refinancing risk, particularly as rates are expected to rise this year. We also believe the size of the tender will depend on which existing T debt is part of the $13 billion exchange.
Exhibit 2. T Debt Maturity Schedule (2022-2028)
Source: Bloomberg; APS
T’s current weighted average maturity is just under 15 years (14.89 years) with a weighted average coupon of 3.72%. T’s weighted average maturity is just over two years longer than VZ, but its weighted average coupon is roughly 50bps higher than VZ’s, as seen in Exhibit 3. While T has targeted its higher coupon debt in previous tender offers, we note that T maintains some coupons above 4% that are maturing between 2024 through 2028. Those bonds could be targeted in a tender offer as it could help to smooth some maturity walls in 2024, 2026 and 2027 while limiting refinancing risk, particularly as rates are expected to rise, with APS’ Chief Economist calling for seven quarter-point rate hikes this year alone.
Exhibit 3. T vs. VZ Debt Statistics
Source: Bloomberg; APS
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
