Moody’s lowers AT&T debt to Baa2

Moody's Investors Service said it downgraded AT&T Inc.’s senior unsecured ratings to Baa2 from Baa1 due to its elevated leverage following its merger with Time Warner Inc. (Time Warner, Baa2 stable) for about $81 billion.

The outlook is stable.

AT&T funded the merger with a mix of 50% equity and 50% cash and the assumption of Time Warner debt.

Moody's said it estimates that the transaction will elevate AT&T's gross pro forma leverage (including Moody's standard adjustments) to around 3.7 times at year end 2018 with modest deleveraging prospects in the medium-term.

“Furthermore, the transaction will result in total funded debt of over $180 billion, making it the most indebted non-government controlled, non-financial rated corporate issuer. The sheer amount of debt commits AT&T to sizable annual maturity obligations for the long term thereby making the company beholden to the health of the capital markets,” the agency said in a news release.

“The Baa2 rating assumes the company will demonstrate a solid liquidity profile and ability to meet sizable annual debt maturities at all times.”

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