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Last updated: March 29, 2011 12:01 am
JPMorgan Chase’s $20bn bridge loan to finance AT&T’s acquisition of T-Mobile USA is a “credit negative” that might encourage banks to take on outsized risks to win underwriting fees, Moody’s Investors Service has warned.
The credit-rating firm warned that similar risks had surfaced during the second half of 2007, after the leveraged-loan market had seized up and the financial-services industry began its descent into crisis.
While AT&T is an A2-rated company, there remains a chance JPMorgan will not find buyers for the loan, Moody’s analysts wrote in a note on Monday. “We assume JPMorgan’s unusual decision to be the sole banker providing the commitment was an advertisement of its large funding capacity.
“If this translates into giving the bank an advantage in winning the mandate to underwrite AT&T’s long-term bond issuances to pay off the bridge facility, then it may encourage more banks to take on greater single-risk exposure, which would be a credit negative for the industry, including JPMorgan,” it said.
Moody’s added that the “tail risk” was that the loan cannot be sold and becomes non-performing.
JPMorgan was one of several investment banks to advise AT&T on its March 20 deal to acquire Deutsche Telekom’s US wireless arm for $39bn in cash and stock. The German telecommunications company will receive at least $25bn in cash.
JPMorgan was also the sole underwriter for a one-year, unsecured $20bn bridge loan to AT&T.
The bank plans to syndicate the deal to other investors, people familiar with the matter said. One said the bank began to approach potential investors last week. The deal is not the first time JPMorgan has served as the only lender on a multibillion-dollar bridge.
Still, Moody’s said the loan was large, “even by JPMorgan standards”, accounting for 17 per cent of its tier 1 common equity – its highest quality capital – and unusual for its concentration within one bank. By contrast, 11 banks shared a $15bn financing commitment for Sanofi-Aventis’s October 2010 acquisition of Genzyme.
JPMorgan declined to comment.
JPMorgan’s AT&T deal “ is a sign of increasing confidence that someone would underwrite this amount with a view to syndicating it down the line,” said Clayton Rose, a professor at Harvard Business School. “I’d be surprised if every large global bank isn’t kicking down the door to get into this deal.”
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