(Bloomberg) — AT&T Inc. and Discovery Inc. secured funding to consolidate their media businesses after selling $30 billion in bonds in one of the largest corporate debt offerings in history.
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The deal has received $106 billion in orders, a sign that investors’ appetite is returning to a market rocked by inflation and Russia’s invasion of Ukraine.
The companies sold the bonds in 11 installments through a division called Magallanes Inc. The longest part of the offer, a 40-year security, yields 3.05 percentage points higher than U.S. Treasury bonds after previous discussions by about 3.25 percentage points, according to a person familiar with the sale, who asked not to be named, so how the details are private.
This $30 billion sale is the largest since AbbVie Inc.’s bond sale to help fund its 2019 acquisition of Allergan Plc, according to data compiled by Bloomberg, and is the fourth-largest U.S. high-quality bond issuance ever.
Buying interest of $106 billion was the highest for a corporate debt offering since CVS Health Corp. sold bonds in 2018, indicating that investors are willing to take risks in a market rocked by the Russian invasion and hot inflation. The AT&T and Discovery offering is rated BBB- by S&P Global Ratings and Baa3 by Moody’s Investors Service, one notch above junk.
According to David Knutson, head of US fixed income product management at Schroders Plc, there is still a gross imbalance: too many dollars chasing too few investment opportunities.
“Investors were ready for the deal and see this as an opportunity to get backed up in spreads,” Knutson said in an emailed response to questions. “It’s very difficult to do that in the secondary market.”
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Read more: IG ANALYSIS: Magallanes builds $106 billion book, fourth biggest deal
In May, AT&T said it would spin off its media assets, including HBO, CNN and the Warner Bros. studio, and merge them with Discovery in a $43 billion deal. The deal, expected to close in April, will merge broadcaster 90 Day Fiancé and Property Brothers with the company behind Descendants and the Batman films, creating a media giant with cable, movie studio and streaming services HBO Max and Discovery+. The combined company, which will be known as Warner Bros. Discovery will have a debt of about $55 billion.
The deal caused risk assets to rise on Wednesday, helped by attractive prices for the bonds themselves, as well as early selling by banks. They began pushing the deal with investors on Monday, an unusual move in a high-quality bond market where offers are usually announced and sold on the same day. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Plc led the sale.
“There is a lot of demand on the order book,” Winifred Sizar, global head of strategy at CreditSights Inc., said in a phone interview when the deal was being evaluated. “My expectation is probably that investors are looking at the transaction, expecting it to trade fast enough on the break.”
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A well-received offer could give other companies the confidence to issue debt in a credit market that has been spooked by changes in geopolitics and monetary policy.
The large supply of high-quality bonds may also have affected the Treasury market. The long leg of the US Treasury curve fell to session lows on Wednesday morning in New York and remained under pressure after the deal was announced. And long-term swap spreads have continued to widen, suggesting how cash flows associated with corporate issuance can affect the long-term end of the curve.
US investment-grade bond sales have rebounded sharply in recent weeks, even as borrowing costs rise, a sign that companies want to lock in funding now amid expectations of continued volatility. As early as March, about $80 billion worth of bonds had been sold as syndicates bided their time to seize the opportunity to sell the debt.
However, this year investors are pulling money out of corporate debt amid global volatility. Funds investing in high-quality US bonds last week announced their biggest withdrawal in almost three months, with an outflow of about $3.3 billion, according to data from Refinitiv Lipper. And the high-end benchmark index has fallen more than 7% this year, following its sharpest January-February drop since 1980.
(Updates to display the transaction price, starting with the first paragraph.)
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