Science & Technology
Science and Technology
Science and Technology
Fri, May 28, 2010
Thu, May 27, 2010 
CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed Communications Inc.'s (Verizon) (NYSE: VZ) Issuer Default Ratings (IDRs) and debt ratings as follows:
--Long-Term IDR at 'A';
--Senior unsecured debt at 'A';
--Short-Term IDR at 'F1';
--Commercial paper at 'F1'.
In addition, Fitch has assigned the following rating:
--$6.2 billion senior unsecured bank facility due April 14, 2013 'A';
The Rating Outlook is Stable.
In addition, Fitch has reviewed the ratings of certain Verizon subsidiaries and the actions are listed at the end of this release.
Fitch is also maintaining on Rating Watch Negative the IDRs and issue ratings of certain telephone operating subsidiaries which Verizon plans to divest and that will be acquired by Frontier Communications Corporation (Frontier) (NYSE: FTR) as follows:
Verizon North
--IDR 'A';
--$200 million unsecured noted due 2028 'A'.
Verizon West Virginia
--IDR 'A';
--$50 million private placement notes due 2029 'A'.
Fitch believes that the IDRs and securities of the entities that will be spun-off may ultimately be downgraded to 'BBB-' or lower. Fitch expects to resolve the ratings prior to the expected July 1, 2010 close of the transaction.
For Verizon Northwest, Fitch has affirmed the 'A' IDR and issue rating assigned to its $175 million of debentures due June 1, 2010. The issue will mature prior to the close of the transaction with Frontier, therefore the rating has been removed from Rating Watch Negative and assigned a Stable Rating Outlook. Fitch will withdraw the IDR assigned to Verizon Northwest following the maturity of the debenture.
VZ's ratings reflect the significant scale and scope of its domestic wireline and wireless businesses, the high proportion of revenues from wireless and wireline growth areas, and, following the acquisition of Alltel Corp. in January 2009, the return by the end of 2010 to a leverage range supportive of the 'A' rating, which in Fitch's view is 1.5 times (x) to 1.6x. An important component of VZ's and Verizon Wireless (VZW)-related ratings are expectations for continued relatively strong growth at VZW of revenue, EBITDA, and free cash flow. In 2009, the domestic wireless segment produced 57% and 69% of total segment revenues and EBITDA, respectively. Over the next several years, Fitch expects VZW's contribution to consolidated revenue and EBITDA to continue to increase through continued growth, particularly from wireless data services. In Fitch's view, potential integration risk related to the Alltel Corp. (Alltel) acquisition in January 2009 has diminished materially given the strong performance of the wireless segment since the merger.
VZ's leverage for the last 12 months (LTM) ending March 31, 2010 was approximately 2.0x. Excluding merger integration and acquisition costs, access line spin-off related charges, and severance, pension and benefit charges incurred over the LTM, leverage was approximately 1.7x. Leverage is expected to continue to decline as VZW's strong free cash generation is being dedicated to meaningful delevering over a two-year period following the completion of the Alltel transaction. Fitch believes VZW will continue to reduce its post-acquisition debt levels, with its capacity demonstrated by VZW's $11.9 billion of free cash flow generated over the LTM ending March 31, 2010.
Concerns include the ongoing competitive pressures in the residential wireline market from wireless substitution and cable telephony competition, and the effect of the economic downturn and the subsequent slow recovery on revenues from business and residential customers. In addition, the economy has slowed wireless revenue growth through continuing pressure on voice average revenue per user (ARPU) and lower subscriber growth, which has been partly offset by continued solid take-up rates of wireless data services. In the intermediate term, VZW will need to successfully deploy its fourth-generation wireless network, based on the long-term evolution (LTE) network standard, as well as have new applications developed (both internally and externally) that use the network. Commercial launch of the LTE network is expected in 2010.
There is event risk regarding VZ's potential acquisition of Vodafone Group Plc's (Vodafone) 45% interest in VZW, as there would be concerns with regard to its initial outlay and financing. At the current time, the companies appear strongly committed to the partnership.
The maintenance on Rating Watch Negative of certain subsidiaries reflects their expected spin-off into the new company that will merge with Frontier. The subsidiaries will be part of a more levered company than Verizon, but post-merger Frontier is expected to be less levered than currently. On a long-term basis, $250 million of existing Verizon subsidiary issues are expected to remain outstanding as obligations of Frontier. The transaction is expected to close on July 1, 2010.
On a consolidated basis, VZ had $61.6 billion in debt at March 31, 2010, and included in this amount was approximately $1 billion in commercial paper (CP). The CP is backed by a $6.2 billion credit facility, and Fitch expects VZ to maintain aggregate CP balances within a level fully backed by the facility. The credit facility has no ratings triggers or other restrictive covenants, such as leverage or interest coverage tests. The three-year facility matures on April 14, 2013. Pro forma for letters of credit, approximately $6.1 billion is available on the facility. For the 12 months ending March 2010, free cash flow after dividends and capital spending was approximately $10 billion, and at March 31, 2010, Verizon had approximately $3 billion in cash. VZ's universal shelf registration provides for the issuance of up to $4 billion in debt or equity securities. VZ and its subsidiaries have debt maturities of $4.8 billion and $9.4 billion in 2010 and 2011, respectively.
In 2010, VZ expects capital spending to be in a $16.8 billion to $17.2 billion range, comparable to the $17 billion spent in 2009. VZ, in the near term, is not expected to repurchase common stock, as debt reduction remains a priority for the use of free cash flow.
On March 31, 2010, VZW had $23.3 billion in debt outstanding, which comprised $21.5 billion of external debt, and $1.8 billion owed to Verizon Financial Services LLC (VFSL), a subsidiary of Verizon. Subsequent to the end of the first quarter of 2010, VZW repaid $770 million on a three-year term facility and reduced intercompany borrowings by $760 million. Liquidity was provided by $942 million in cash balances and the generation of $11.9 billion in free cash flow over the LTM ending March 31, 2010. VZW also has the ability to borrow, repay, and re-borrow up to $750 million from VFSL on a note that matures in August 2010.
In 2010, maturing debt consists of a $1.04 billion repayment of the floating-rate note to VSFL and $1.3 billion on a three-year term credit facility. In 2011, approximately $6.9 billion matures, while only $1.55 billion matures in 2012. Fitch believes VZW will be able to retire maturing debt using free cash flow.
Fitch has affirmed the following Verizon entities with a Stable Outlook:
Cellco Partnership
--IDR at 'A';
--Senior unsecured debt (co-issued with Verizon Wireless Capital LLC) at 'A';
--Three-year term loan due September 2011 (co-issued with Verizon Wireless Capital LLC) at 'A'.
Verizon Wireless Capital LLC
--IDR at 'A';
--Senior unsecured debt (co-issued with Cellco Partnership) at 'A';
--Three-year term loan due September 2011 (co-issued with Cellco Partnership) at 'A'.
Alltel Corp.
GTE Corp.
Verizon Delaware
Verizon California
Verizon Florida
Verizon Maryland
Verizon New England, Inc.
Verizon New Jersey
Verizon New York, Inc.
Verizon Pennsylvania
Verizon Virginia
--IDR at 'A';
--Senior unsecured at 'A'.
GTE Southwest
--IDR at 'A';
--First mortgage bonds at 'A'.
Verizon Global Funding
--Senior unsecured at 'A'.
The following rating has also been assigned with a Stable Outlook:
Alltel Communications Inc.
--IDR 'A';
--$34 million senior unsecured notes due Dec. 1, 2017 'A'.
The following rating has been withdrawn following the maturity of outstanding debt:
NYNEX Corp.
--IDR at 'A'.
The rating reflects the application of Fitch's current criteria which are available at '[ www.fitchratings.com ]' and specifically include the following reports:
--'Corporate Rating Methodology' (Nov. 24, 2009);
--'Liquidity Considerations for Corporate Issuers' (June 12, 2007).
Additional information is available at '[ www.fitchratings.com ]'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ WWW.FITCHRATINGS.COM ]'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.
