AT&T's $4 billion commercial paper backstop facility is said to be trading in the grey market in the 94-97 range, hampering the lead arrangers' attempts to sell down their own hefty exposures. Citigroup, Credit Suisse First Boston, Goldman Sachs and J.P. Morgan co-lead the line, and are said to have taken $550 million pieces, while a number of other banks contributed at the managing agent level. "While the lead arrangers are shopping this loan, the managing agents are selling it in the mid-to-high 90s," a banker said. A banker at one of the leads denied the deal was being offered at these levels, but several bankers confirmed the levels. Officials at the lead banks either declined comment on the record or could not be reached by press time. An AT&T spokeswoman did not return calls.
It could not be determined how much of the loan has traded on a when-issued basis, or which banks are actively selling the loan, but bankers pointed the finger at investment banks that signed onto the credit. "Some of the investment banks have taken large chunks of the credit to gain other business, but they don't like holding unfunded assets, and so are looking to sell off exposure," the banker explained. The loan is priced at LIBOR plus 1% with a 12.5 basis points facility fee, which many bankers have stated is far too cheap to reflect the risk. "Look at the credit default swap levels," said one banker who cited the sector risk for the BBB+Baa2 credit. But the banker at one of the leads said, "This is an unfunded asset and the loan will probably halve once the AT&T Broadband and Comcast merger closes next quarter."
The banks that took part in the when-issued selling are taking a hit for participating and then selling down, but they are betting that ancillary business will justify the expense, one banker stated, adding "there is derivatives, trading, 401k business." But chipping in on loans to win ancillary business is risky business these days. J.P. Morgan's announcement last week that its third-quarter earnings would suffer from $1.4 billion in losses related to loans that had gone bad has more banks looking at the business sense of some of their lending relationships.
