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Fitch Rates Verizon Communications' Debt Issue 'A'; Outlook Stable

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^{Published in Science and Technology on Thursday, March 24th 2011 at 11:55 GMT by Market Wire}  

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has assigned an 'A' rating to Verizon Communications, Inc.'s (Verizon) (NYSE: VZ) $6.25 billion offering of three-, five-, 10-, and 30-year senior unsecured notes. The proceeds will be used for the repayment of commercial paper (CP), the repayment of operating company subsidiary debt maturing on or before April 1, 2012 and for general corporate purposes. The Rating Outlook is Stable.

VZ's ratings reflect the significant scale and scope of the company's 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)-1.6x. An important component of VZ's ratings is the expectation for continued relatively strong growth in Verizon Wireless' (VZW) revenue, EBITDA, and free cash flow (FCF). Over the next several years, Fitch expects VZW's contribution to consolidated revenue and EBITDA to continue to increase through continued subscriber and service revenue growth, particularly from wireless data services.

VZ's leverage at year-end 2010 was approximately 1.7x. Excluding merger integration and acquisition costs; access line spinoff-related charges; a deferred revenue adjustment; the impact of divested operations; and severance, pension and benefit charges, leverage was approximately 1.55x. The pending acquisition of Terremark Worldwide, Inc. for approximately $2 billion, including acquired debt, is expected to reduce the pace of delevering in 2011. With respect to continuing operations, VZW's strong FCF generation provides financial flexibility. VZW's capacity to contribute to debt reduction is demonstrated by its $17.6 billion of simple FCF (EBITDA less capital spending) in 2010.

Concerns include the ongoing competitive pressures in the residential wireline market from wireless substitution and cable telephony competition, and the effect of the slow economic recovery on revenues from business and residential customers. In the intermediate term, VZW will need to successfully deploy its fourth-generation (4G) 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 occurred in December 2010.

At Dec. 31, 2010, VZ had $52.8 billion in debt on a consolidated basis, and of this, $7.5 billion matures within one year. VZ's CP issuances are backed by a $6.2 billion credit facility, and Fitch expects the company 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. After the effect of letters of credit (LOCs), approximately $6.1 billion is available on the facility. In 2010, FCF after dividends and capital spending was approximately $11.5 billion, and at Dec. 31, 2010, VZ had approximately $6.7 billion in cash. On a consolidated basis, VZ and its subsidiaries have debt maturities of approximately $7.5 billion and $5.9 billion in 2011 and 2012, respectively.

In 2010, capital spending approximated $16.5 billion, of which $8.4 billion was wireless capital spending. The main driver of an 18% increase in wireless spending consisted of the buildout of the 4G wireless network as well as continued investment in the third-generation (3G) network. In 2011, consolidated capital spending is expected to be flat with or down from 2010 levels. VZ is not expected to repurchase common stock in the near term, as debt reduction remains a priority for the use of FCF.

Additional information is available at '[ www.fitchratings.com ]'.

Applicable Criteria and Related Research:

--'Rating Global Telecoms Companies' (Sept. 16, 2010);

--'Corporate Rating Methodology' (Aug. 16, 2010).

Applicable Criteria and Related Research:

Rating Global Telecoms Companies - Sector Credit Factors

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=550205 ]

Corporate Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 ]

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