AT&T; Plans to Redeem Bulk of Preferred Stock : $809-Million Outlay Will Reduce Its Total Debt

In another move to cut fixed costs, American Telephone & Telegraph said Wednesday that it will spend $809 million to redeem most of its preferred stock, effective May 1.

The redemption of 15.5 million shares of two separate classes of preferred stock will trim AT&T;’s total debt and related obligations to about $6.8 billion, down from $7.6 billion at the end of last year. The company had already reduced those liabilities by $1.6 billion in 1986.

“This is a continuation of their attempts to reduce costs in any way they can,” said Robert B. Morris III, an analyst with Prudential-Bache Securities.

AT&T;’s preferred stock, Morris said, has become a relatively expensive form of financing now that interest rates have fallen. He explained that the dividends paid on the shares come from after-tax income and, unlike loan payments, are not tax-deductible operating expenses.

The company’s action, retiring $775 million of stock and paying another $34 million in premiums for the early redemptions, will leave 600,000 shares of each class of preferred outstanding, AT&T; said.

Has Strong Cash Flow

AT&T;’s treasurer, S. Lawrence Prendergast, said in a statement issued in New York that last year’s debt reduction trimmed $200 million from the company’s annual fixed costs. The new redemption will save another $50 million a year, he estimated.

Although AT&T;’s earnings last year were hurt by big special charges for a restructuring and layoffs, the company continues to generate a strong cash flow, particularly from its profitable long-distance telephone operations.

The $809-million expenditure is “a pretty huge chunk of money, but a very manageable amount for them,” said Bradford L. Peery, president of Brad Peery Inc., an investment banking firm in Tiburon, Calif., that specializes in the telecommunications industry. “It’ll certainly help their earnings.”

AT&T;’s action comes at a time when many firms are buying back some of their own common stock to help boost the prices of the shares. Analysts said, however, that redeeming preferred shares, stock that carries no voting rights, has no direct effect on the performance of a company’s common stock.

In New York Stock Exchange trading Wednesday, AT&T;’s common stock closed at $23.375, off 12 1/2 cents a share.