If AT&T’s Debt Stays High, What Happens To Your AT&T Stock?
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AT&T ended September with net debt at 3.13 times adjusted EBITDA, management’s measure of earnings, up from 2.68 times in June. Management tied the increase to the spectrum licenses AT&T (T) bought from EchoStar at the end of July. The company expects to bring the ratio back to about 2.5 times during 2029, partly with money it has not yet received. If those funds arrive late, you would own a company carrying more debt for longer. So is the money for paying down that debt on its way?
AT&T Has Agreed Two Deals, But Neither Has Closed
The deals are agreed, but the money is not yet in hand. AT&T said on October 13 that it would sell AT&T Mexico to Grupo Televisa and Fintech Holdings. During its October 21 call, management described an agreement with Global Infrastructure Partners and CPP Investments to form a fiber joint venture. Management expects proceeds from both transactions in 2027, and plans to repay debt with those funds alongside spare cash and growth in earnings.
Carrying that debt is already costing more than management first planned. Cash interest payments for 2026 are running above the initial outlook, management said on the same call, mainly because of higher gross debt and interest rates. Until the two deals close, any debt AT&T repays will depend mainly on the cash its own business produces.
Shareholders Got Nearly All Of AT&T’s Free Cash Flow
Over the twelve months to September, very little of that cash remained once shareholders were paid. AT&T generated $17.8 billion of free cash flow and paid $7.94 billion of it as dividends. Buybacks absorbed another $9.3 billion, bringing total payouts to $17.24 billion. Total debt rose to $178 billion over those twelve months, climbing from $158 billion a year earlier. Management still targets about $10 billion of buybacks for 2026, so spare cash for repaying debt stays small at that pace.
What Stuck Debt Would Cost An AT&T Holder
If the debt stays near today’s level, AT&T’s yearly interest bill is likely to be larger than the $7.47 billion of interest expense it recorded in the year to September. That period captured only two months of the higher debt load following the spectrum purchase at the end of July. AT&T’s total debt also equals 121.9% of its market value, compared with 19.2% for the S&P 500. AT&T stock has also fallen harder than the market in a shock before: it dropped 20% from peak to low in the 2023 regional banking crisis, against 6.7% for the S&P 500.
AT&T earns enough to cover that bill. Operating income covered interest expense 3.7 times over the past twelve months, and the dividend took less than half of free cash flow. As things stand, debt that stays high means waiting longer for the 2.5 times target, with less room for buybacks, rather than a strain on paying the interest or the dividend.
When You Will Know If AT&T’s Debt Is Falling
Both deals are agreed, and management expects the money from them in 2027, once they close. The cash AT&T keeps after paying shareholders is less certain, and it starts with the free cash flow the company reports every quarter. AT&T is expected to report its fourth quarter in January 2027. Its free cash flow for that quarter, measured against management’s estimate of about $6 billion, is the number to watch.
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