TEL AVIV (Reuters) – U.S. hedge fund Olympic Peak Management’s founding partner said on Wednesday he planned to short AT&T’s debt when the fund launches in January, citing increasing competition and high leverage that may ultimately lead to a credit ratings downgrade.
Todd Westhus told the Sohn Conference in Tel Aviv that the telecoms giant’s debt was misperceived as risk free while its main businesses and fundamentals were weakening, even as the U.S. economy grows.
The company benefits today from an unsustainable price premium relative to T-Mobile and its business and consumer wireline operations are losing market share, he said.
Westhus said potential negative catalysts for the bonds were a ratings downgrade from an investment grade ‘BBB/Bb2’ to high yield, a dividend cut, acquisitions that would leverage its balance sheet, and a recession.
A spokesperson for AT&T (NYSE:) said the company had a net debt-to-adjusted EBITDA (core earnings) ratio of 2.9 times as of the second quarter and continued to expect the ratio to be in the 2.5 times range by the end of 2019.
“AT&T continues to expect to return to historical debt levels by the end of 2022,” the spokesperson said. “AT&T will use cash after dividend payments to pay down debt.”
Westhus formerly worked at Perry Capital, which was shut in September 2016 after almost 28 years.
He has $300 million in anchor capital from investors including the co-founders of Perry, Richard Perry and Paul Leff, and Marc Lasry from Avenue.
“We are continuing to raise money into our launch on January 1, 2019 and will close the fund at $750 million,” he told Reuters on the sidelines of the conference.