T-Mobile’s wallet size for the broadcast auction
In the previous part of this series, we learned about the Federal Communication Commission 600 MHz (megahertz) broadcast auction that is expected to begin at the end of 1Q16. This auction is significant for T-Mobile (TMUS) considering its relatively low-coverage spectrum holdings compared to those of AT&T (T) and Verizon (VZ).
Of the top US wireless players, Sprint (S) is not participating in this auction. During the Morgan Stanley European Technology, Media, and Telecom Conference held on November 12, 2015, T-Mobile’s chief financial officer J. Braxton Carter talked about the company’s funding options for buying spectrum holdings in this auction.
According to Carter, “We went to the rating agencies with a theoretical maximum spend of up to $10 billion and confirmed with the rating agencies that our secured debt would be investment grade and there would be no adverse consequences to our corporate family or our unsecured ratings with incremental leverage up to $10 billion.” He added, “But that’s a theoretical maximum.”
Funding for the broadcast auction
During November 2015, T-Mobile added a total of ~$4 billion in funding that may be used in the broadcast auction. This included a ~$2 billion term loan agreement signed on November 9, 2015. Funding also included ~$2 billion in senior notes that will mature on January 15, 2026.
Apart from this ~$4 billion in funding, during the conference, Carter mentioned, “The plans are to do another $2 billion prior to the auction and then we’ll get into the auction and we’ll see what happens at that point.”
Instead of taking direct exposure to T-Mobile’s stock, you may consider taking diversified exposure to the telecommunication company by investing in the iShares US Telecommunications ETF (IYZ).
IYZ had ~5.8% of its holdings in T-Mobile at the end of September 2015.