Spreads on high-yield telecom credits are widening on fears that AT&T Corp. will be downgraded to junk status, dumping its $11 billion in outstanding debt on the high-yield market. Moody’s Investors Service and Standard and Poor’s both have triple-B Ma Bell on watch for downgrade and have indicated they could cut by two notches. This technical risk has cast a shadow on the entire telecom industry, said Ana Goshko, telecom analyst at Banc of America Securities in New York. “Should AT&T enter the high-yield market, with over $11 billion in debt, the sheer supply of debt coming in would hurt the market,” she explained. MCI and Time Warner Telecom suffered last week as portfolio managers repositioned their holdings in preparation for AT&T’s arrival, said one portfolio manager. MCI’s 10-year notes finished down more than two points at around 90 1/2, while its five-year notes were also down more than two points at roughly 93 1/2. Time Warner Telecom’s 10 1/8% notes were off between two and three points and were trading at between 89 1/2 and 90 1/2. Meanwhile, AT&T’s ’11s and ’31s widened about 30 basis points on the week, said one trader.
Junk Market Braces For Ma Bell Downgrade