Discovery/WarnerMedia readies benchmark megadeal for merger

Chicago, March 9 – AT&T Inc. and Discovery, Inc. are ready to price a benchmark offering of senior notes (Baa3/BBB-/BBB-) in 11 tranches as Wednesday’s business after two days of fixed-income investor calls, according to market sources.

The first three parts of the Rule 144A and Regulation S deal will come with a March 15, 2024 maturity date.

The structure of the first three series is a non-call floating-rate tranche, a fixed-rate tranche and a second fixed-rate tranche with one year of call protection.

Drilling down, the two fixed-rate tranches are differentiated by a make-whole call for the middle tranche throughout the two-year term and the third tranche starts with a make-whole call that converts to a par call after the first year.

The floater is being talked at SOFR plus an equivalent spread. The fixed-rate tranches have talk in the Treasuries plus 190 basis points area for the first fixed tranche and in the Treasuries plus 200 bps area for the tranche with a par call.

Next, there are two notes due March 15, 2025.

A three-year fixed-rate tranche with a make-whole call all the way through is being talked in the Treasuries plus 195 bps area.

A second fixed-rate tranche with a make-whole call for the first two years and then an optional par call in the third year has talk in the Treasuries plus 210 bps area.

Moving on, the deal will include a five-year fixed-rate tranche with a make-whole call option and then a quick one-month par call option one month before maturity. Talk for the tranche is in the Treasuries plus 210 bps area.

Coming to the middle-dated notes, the deal will have fixed-rate seven-year notes with a make-whole call and then a par call two months before the maturity date. Talk is in the Treasuries plus 235 bps area.

A 10-year fixed-rate tranche is being talked in the Treasuries plus 250 bps area. It will also have a make-whole call and then a par call three months before the maturity date.

A 20-year fixed-rate part is also mostly call protected with a make-whole option until six months before the maturity date. Talk has it coming in the Treasuries plus 285 bps area.

The deal also has two long-dated series. Both have make-whole calls all the way through until six months before their respective maturity dates.

A 30-year tranche has talk in the Treasuries plus 300 bps area.

A 40-year series is being talked in the Treasuries plus 325 bps area.

On all of the notes, any change of control would make the notes putable at 101.

There is a special mandatory redemption if the merger is not completed by July 15, 2023. The notes will be redeemed at 101 in that case.

J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC are joint global coordinators. Barclays is an additional joint bookrunners but is not involved on the two longest-dated tranches.

Proceeds are slated for the purchase of Magallanes, Inc. Magallanes will be the listed issuer.

AT&T is a telecommunications services provider based in Dallas. AT&T is spinning off WarnerMedia to merge with Discovery, a New York-based factual television conglomerate.

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