Credit ratings agency Moody's (MCO +1.05%) has announced it may downgrade its rating for AT&T (T +0.38%) in light of recent changes to the telecom's financial policy. Approximately $64 billion in debt is affected, according to Moody's.
Moody's said AT&T's intent to increase its debt in order to make good on its stock repurchasing plan and to increase capital expenditures has prompted a review of AT&T's commercial paper rating of A2.
AT&T has a current 1.5 times adjusted debt/EBITDA ratio, which will increase to 2.5 times, according to Moody's calculations. This is a "strong negative" says Moody's and will put "many of AT&T's financial metrics ... outside the boundaries expected for an A2-rated issuer for an extended period ..." The agency considers 2.0 times adjusted debt/EBITDA a potential downgrade benchmark.
Moody's says it wants to review all AT&T ratings, including its short-term debt rating, while it assesses "the offsetting positives that may derive from increased capital spending in the wireless and wireline businesses." The ratings agency noted that it views favorably AT&T's plans to increase capital spending on wireless, as "it should improve AT&T's service quality and help the company maintain its position as a leader in the US wireless industry."
