|[September 11, 2013]
Fitch: Verizon $49B Debt Issue Slashes Risk
NEW YORK & CHICAGO --(Business Wire)--
Verizon significantly reduced its risk by selling $49 billion in bonds
to finance its proposed acquisition of Vodafone's (News - Alert) U.S. group, Fitch
Ratings says. The large issue reduces the future risk of rising interest
rates and removes the chance that Verizon would have had to pay a
penalty if the deal failed due to financing.
Verizon (News - Alert) Tuesday sold a record $49 billion in bonds, which included
three- and five-year fixed- and floating-rate note tranches and seven-,
10-, 20- and 30-year fixed-rate pieces. The $15 billion 30-year offering
was the largest of all tranches offered. Orders for the entire issue
were said to have exceeded $90 billion, underscoring heavy investor
The weighting of the financing toward longer maturities is a credit
positive, as additional amounts to be refinanced in the next five years
would have been greater if the deal had been weighted toward shorter
We expect Verizon to delever using free cash flows but are mindful that
the company will need to refinance some debt maturing over the next
The debt deal virtually eliminates risk related to a $10 billion
termination fee payable to Vodafone had the deal failed due to
financing. Fitch believes the probability of this occurring would have
been low but, nonetheless, very costly had it come to pass. We note that
acquisition risks, including approval of the deal via shareholder votes
in addition to regulatory approvals, still exist.
Fitch recognizes that leverage will be outside an appropriate range for
an 'A-' rating fr several years. However, the company's strong position
in the wireless industry and the significant cash flows generated by the
wireless business, plus management's commitment to delever, provide
support for limiting the downgrade to one notch. Management's commitment
in this area has been shown by the aggressive delevering following the
acquisition of Alltel (News - Alert) Corp. in early 2009. Other supporting factors
include the absence of operations-related execution risk.
Fitch downgraded Verizon's long-term issuer default rating (IDRs) to
'A-' from 'A' on Sept. 3 following a review of the proposed acquisition
of Vodafone, with its principal asset of 45% of Verizon Wireless (News - Alert), for
$130 billion. The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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