AT&T Inc is once again tapping the bond market, looking to fund a tender offer that aims to redeem high-coupon debt due in the next five years.
The wireless carrier is capitalising on a rally in credit markets that has seen all-in investment-grade borrowing costs plunge to record lows. Its new 40.5-year bonds may yield around 3.6%, based on initial price talk, while the company is retiring 7.85% notes due in two years, among others in the tender offer.
AT&T has often issued new bonds to buy back outstanding debt, chipping away at what’s now a roughly $169bn pile that has made it the world’s largest non-financial borrower. 
Most of that stems from its acquisitions of Time Warner Inc and DirecTV, which has led management to prioritize deleveraging in recent years.
The company’s finances are getting tighter. AT&T reported a 9% drop in revenue last week as the financial effects from the coronavirus pandemic dampened its media and advertising sales and caused 588,000 to stop paying their wireless and cable bills. It’s also in the middle of a sweeping cost-cutting effort targeted to slash annual expenses by about $6bn.
The entertainment and telecommunications giant is also continuing to look for opportunities to lower interest payments. Chief Financial Officer John Stephens said on the company’s earnings call that ongoing liability management strategies were “actively being considered” to maintain improved flexibility and reduce risk.
“We’re very active. And quite frankly, the bond market has responded quite well,” Stephens said. “That’s been a real focus and it will continue to be a focus of ours.” AT&T is marketing a five-part bond sale, according to a person with knowledge of the matter. 
The longest portion, a 40.5-year security, may yield around 2.45 percentage points above Treasuries, the person said, asking not to be identified as the details are private.
The proceeds of the sale will be used to fund a tender offer, which AT&T separately announced in a statement Monday. It targets 21 series of debt maturing through 2025, some with interest rates as high as 7.85%. The bonds represent about $9bn in outstanding principal. The company last borrowed $12.5bn in May to refinance bonds and a term loan. It wrapped up a different tender offer in December, which targeted 53 series of notes.
In the earnings report, Dallas-based AT&T said net debt declined by $2.3bn in the second quarter, putting leverage at about 2.6 times adjusted earnings. 
However, credit metrics may weaken this year and further improvement will slow “dramatically” through 2022 given disruptions from the pandemic, Moody’s Investors Service said in a report last month.
The debt pressure is compounded by AT&T’s need to spend billions on building a 5G wireless network as well as fund the creation of new movies and shows to feed its content pipeline. The company assured investors that its $14bn annual dividend payment is safe, but said it would consume about 60% of its available free cash flow. Last year, the dividend was about 51.3% of free cash flow.