A wave of expected major-media mergers would transform AT&T Inc. and Comcast Corp. into the two most indebted companies in the world, a standing that carries uncharted risks for investors in the firms’ bonds.
If the deals are finalized—AT&T
T, -2.03%
plans to buy Time Warner Inc.
TWX, +293.51%
and Comcast
CMCSA, -1.92%
to purchase 21st Century Fox Inc.
FOX, -0.74%
— the companies will carry a combined $350 billion of bonds and loans, according to data from Dealogic and Moody’s Investors Service. The purchases are meant to provide additional income to help the acquirers to weather turmoil sweeping their industries. But if the mergers falter, the record debt loads will give AT&T and Comcast little margin for error, fund managers and credit ratings analysts say.
‘It’s a very big number. It has fixed-income investors a little nervous and rightfully so.’
The debt-fueled buyouts by AT&T and Comcast are extreme examples of a decadelong surge in corporate borrowing that is stoking investor anxieties about what will happen as the economy slows and global interest rates rise. The ratio of debt to corporate earnings, commonly called leverage, has also risen, giving companies less financial cushion to absorb market shocks.
Read: Why the AT&T-Time Warner merger could be bad news for consumers
Global corporate debt excluding financial institutions now stands at $11 trillion and the median leverage for such companies rated investment-grade has jumped 30% since the eve of the financial crisis in 2007, according to research by ratings firm Moody’s Investors Service. Most companies issue new loans and bonds to repay debt and investors are concerned about how companies will refinance their record-breaking debt loads when capital markets experience their next significant downturn.
An expanded version of this report appears on WSJ.
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