AT&T takeover bid offers fees, risks
WALL STREET banks are writing some of their biggest cheques to fund AT&T’s takeover of Time Warner as they seek a bonanza of fees. But there is a dose of concern that the $40 billion (R558bn) loan pledge may get caught up in a regulatory impasse.
JPMorgan Chase has pledged $25bn of the financing, with Bank of America providing the rest, according to a person with knowledge of the matter who asked not to be identified without authorisation to speak publicly. That was believed to be the most JPMorgan had ever promised for a deal, the person said.
The lending commitment gives the banks an advantage on bond offerings that would find willing buyers among yield-starved investors, analysts say. At the same time, the banks face the risk that the deal, along with a chunk of their balance sheets, would be tied up if regulators delay approving it.
“This could be an especially lucrative deal for the banking industry; they’re going to make a lot of money if the deal gets done” said Bert Ely, a banking consultant at Ely. “The numbers on the credit piece look big, but I’m sure the credit risk will be spread widely. The big uncertainty hanging over this will be the battle for regulatory approval and what lender protections are included if the deal fails.”
A failed megadeal wouldn’t be the first for AT&T. In 2011, the company abandoned its takeover of T-Mobile USA because of regulatory hurdles. JPMorgan had lined up $20bn to finance that deal.
Taking on commitments to underwrite large deals helps JPMorgan maintain its top position in leading corporate debt deals in the US.
JPMorgan has occupied the top spot for managing dollar bond sales from highly rated companies since 2010, according to data.
The bank has been the top provider of similarly rated loans for each year since 2005, Bloomberg data show.
To help finance this proposed deal, AT&T brought in Bank of America as its partner on Thursday, keeping the number of participants to a minimum until the announcement, the person said.
JPMorgan intends in the coming weeks to syndicate most of the $40bn loan to other banks that already lend to AT&T. – Bloomberg