AT&T unit inks $10 billion term loan, adjusts loans related to merger

By Rebecca Melvin

Concord, N.H., June 10 – Magallanes Inc., a subsidiary of AT&T Inc. and spinoff company, entered into a $10 billion term loan credit agreement with JPMorgan Chase Bank, NA as agent and a syndicate of lenders on June 4, according to an 8-K filed with the Securities and Exchange Commission.

Advances made under the new term loan will be used to finance a portion of the transaction under which AT&T will separate the business, operations and activities of its WarnerMedia content unit from AT&T under a planned merger agreement with Discovery announced May 17.

The new loan consists of a $3 billion tranche and $7 billion tranche. The outstanding aggregate principal amount of any tranche one loans made to the spinoff will be due and payable 18 months after the closing date. The outstanding aggregate principal amount of any tranche two made to the spinoff will be due and payable three years after the closing. The loan will be terminated if the merger agreement is not consummated or by July 15, 2023.

The interest rate on loans made under the facility will be Libor plus 100 basis points plus an applicable margin, which will be 75 bps to 150 bps per year for eurocurrency rate advances under tranche one, depending on the spinoff’s unsecured long-term debt ratings, and 87.5 bps to 162.5 bps per year under tranche two, depending on the debt ratings.

Beginning on Aug. 15, the company will also pay a ticking fee of 7.5 bps to 27.5 bps of the commitment amount per annum, depending on the debt ratings, until the end of the availability period.

In connection with the new term loan, the spinoff company reduced commitments under one tranche of a previous bridge loan to zero. The commitments under a second tranche of the bridge loan remain in effect at $31.5 billion.

In addition to the new loan, the company entered into three amendments to previous credit agreements which carve out DirecTV Entertainment Holdings LLC and its subsidiaries after the closing of the transaction from being subsidiaries under the facilities. The amendments to a term loan, revolver and five-year credit agreement also permit some liens that may be incurred in connection with the DirecTV transaction and amend the net debt-to-EBITDA financial ratio that the company is required to maintain from 3.5 to 1.0 to 4.0 to 1.0; provided that if the contribution agreement is terminated at any time prior to the consummation of the DirecTV transaction, a ratio of 3.5 to 1 will apply to any fiscal quarter ended on or after the date of such termination.

AT&T is a telecommunications services provider based in Dallas.

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