AT&T Plan to Buy Verizon Assets Affects Ratings

Ah, ratings firms … they giveth and taketh away so much from the entities they follow. On Monday, AT&T Inc. (T) experienced some of that often subjective perspective when competing services took totally different views of the purchase of Verizon Communications Inc. assets in dozens of markets.

Moody’s was first out of the gate, with a downgrade. Analysts revised their outlook of AT&T’s debt rating from stable to negative. The change, they wrote in a press release, “reflects Moody’s concern that given the increase in debt over the last two years (including debt likely to be incurred for pending acquisitions), weak economic conditions and the likelihood of slower growth and increased competition in the wireless business, the company may be more challenged over the next 12 months to restore its financial leverage to levels consistent with its ratings.”

Moody’s did not touch ratings on AT&T’s senior unsecured and Prime 1 short-term notes.

A short while later, Standard & Poor’s said it was keeping its ratings on AT&T unchanged.

“Even if AT&T were to fully fund the acquisition with debt, given the cash generation from prospective wireless assets, AT&T’s overall leverage would not be materially impacted,” analysts wrote in a May 11 memo.

AT&T on Monday agreed to buy certain wireless assets from Verizon, which must divest those valuables to complete its Alltel acquisition. AT&T said it would pay $2.35 billion for about 1.5 million wireless subscribers in 79 service areas.

AT&T’s stock closed up 11 cents on Monday, at $25.36.


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