AT&T aims to repay debt to improve its balance sheet position

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AT&T Inc. T recently issued prepayment notices for three series of bonds valued at $ 1.2 billion in order to improve its liquidity position and reduce the growing debt burden through the early repayment of maturities. debt to come. This strategic move is likely to reduce the risks to its capital structure as the company prepares to weather the coronavirus-induced global turmoil.

With the announcement, AT&T has refinanced or repaid $ 19.4 billion in finance debt since the end of the second quarter of 2020, either through fund buybacks, takeover bids or repayment of scheduled maturities. This, in turn, will reduce its next debt maturities by $ 8.2 billion within a year, as the company aims to capitalize on low borrowing costs to deleverage its balance sheet.

As of June 30, 2020, AT&T had $ 16,941 million in cash and cash equivalents with long-term debt of $ 153,388 million, against respective accounts of $ 9,955 million and $ 147,202 million. dollars at the end of the first quarter of 2020. This shows that although the cash position has improved, the debt burden has increased. The company currently has a leverage ratio of 0.47 versus 0.52 for the sub-industry. Interest Time Earned has declined slightly in recent quarters to 3 currently from 3.7 for the sub-industry.

Notably, AT&T decided to cancel its share buyback program due to the severity of the coronavirus epidemic. The evolving nature of the contagious disease and its severe impact on the economy have forced the company to reconsider the buyout plan, as it has not yet understood the impact on its business due to lack of visibility. Management refrained from giving definitive outlook for the third quarter as well as for 2020.

AT&T is evolving its distribution channels based on changing customer demands and emphasizing self-installation and software platforms to redefine its business plans in the face of the virus outbreak. While optimizing operations, it aims to increase efficiency to reduce costs while supporting employees and customers with various financial packages. Its dividend payout rate is 58.9%. The rate has remained relatively stable over the past few quarters, indicating that the company shares its profits with shareholders. It remains to be seen how AT&T aims to reduce the enormous debt burden in the coming days and whether it faces a liquidity crunch due to the disruption caused by the COVID-19 pandemic.

Going forward, AT&T is committed to meeting its three-year financial framework, which is expected to result in significantly improved margins and earnings growth with sustained investments and reduced debt. For 2020 to 2022, AT&T continues to expect consolidated revenue growth of 1-2% per year. Adjusted earnings are expected to be $ 4.50 to $ 4.80 per share by 2022 with an adjusted EBITDA margin of 35%. While the Adjusted EBITDA margin is expected to be stable in 2020, it is expected to increase in 2021 and 2022, driven by extensive company-wide cost reduction plans, WarnerMedia synergies, continued growth of Mobility and AT&T Mexico EBITDA growth. Free cash flow is expected to be between $ 30 billion and $ 32 billion for 2022, with an adjusted net debt to EBITDA ratio of 2.0 times to 2.25 times, with 100% debt tied to the acquisition of Time Warner’s assets are subject to reimbursement.

We are impressed with this Zacks Rank # 3 (Hold) firm’s focused attempts to maintain a competitive advantage in these turbulent times.

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