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06 Jun 2008
Moody's places Verizon's LT debt ratings on review for downgrade
Approximately $64 billion of Verizon and Alltel debt affected
New York, June 06, 2008 -- Moody's Investors Service has placed the long-term debt ratings
of Verizon Communications Inc. (VZ or Verizon) and its telephone
subsidiaries on review for possible downgrade. Moody's has also
affirmed Verizon Communications' Prime-2 short-term
debt rating. Finally, Moody's has placed the long-term
ratings of Alltel on review for possible upgrade. Our actions follow
Verizon Wireless' (VZW, unrated) June 5, 2008 announcement
that it plans to acquire Alltel for about $28.1 billion
in cash and assumed debt. The complete list of rating actions follows
at the end of this press release.
"The review for possible downgrade of Verizon Communications will
focus on the impact that the significant increase in leverage at VZW will
have on future cash distributions from VZW to Verizon Communications and
the impact of the acquisition on Verizon's overall leverage ratios
and cash flows", commented Dennis Saputo, Senior Vice
President. The review will also focus on VZW's plans to generate
multi-billion dollar expense reductions and capital efficiencies
from the acquisition of Alltel. Moody's believes the VZW and Alltel
combination will allow for significant expense and capital synergies.
While VZW has indicated that the net present value of synergies from this
transaction approximate $9 billion, VZ estimates the company
will need to invest about $1.7 billion in the first two
years to achieve these savings.
The review for possible downgrade of Verizon's operating telephone
companies (opcos) will focus on the possibility of changes in Verizon's
approach to managing the balance sheets of these subsidiaries as a result
of the significant increase in leverage at VZW. Specifically,
we will assess the possibility that Verizon may seek to increase dividends
from these subsidiaries in order to offset what we believe will be a reduction
in the cash flows from VZW to VZ, given the likelihood that VZW
will incur significant external debt. Should this occur,
especially considering the heavy investment requirements at the operating
telephone companies as they invest in their FiOS upgrade, it is
possible that the balance sheets of these subsidiaries will become strained.
However, as Moody's noted in the Analysis we published on Verizon
in September 2007, for several years now Verizon has taken steps
to support the credit profile of its operating telephone companies.
During this time period, the opcos have not issued external debt
while their individual funding needs have been provided via inter-company
loans from the parent. In addition, Verizon has restricted,
and in some cases eliminated, the amount of dividends that the opcos
pay to their parent. And, in 2007, Verizon infused
$2.0B of capital into Verizon-NY to shore up its
The review of Alltel's ratings will focus on VZW's plans with regard to
the existing Alltel debt. "Moody's believes that it is highly
likely that VZW will choose to refinance the bulk of the debt associated
with the leveraged buyout of Alltel, given the high cost of that
debt", stated Saputo. However, should any of
the Alltel LBO debt remain outstanding and not be guaranteed, ratings
on that debt are likely to be notched up modestly from their existing
levels, provided sufficient stand-alone financial information
continues to be available. Furthermore, Moody's expects
that VZW will assume or guarantee Alltel's legacy debt.
The following ratings are on review for upgrade:
$2.3 billion Senior Unsecured Notes -- Caa1,
LGD 6 (95%)
$1.0 billion Senior Unsecured Toggle Notes --
Caa1 LGD 5 (79%)
Corporate Family Rating -- B2
Probability of Default Rating -- B2
$14.0 billion Senior Secured Term Loan B due 2015 --
Ba3, LGD2 (27%)
$1.5 billion Senior Secured Revolving Credit Facility due
2013 - Ba3, LGD2 (27%)
$7.7 billion Senior Unsecured Committed Bridge Facility
-- Caa1, LGD 5 (79%)
Ratings placed on review for possible downgrade are:
Verizon Communications: senior unsecured, A3
NYNEX Corporation: senior unsecured, A3
GTE Corporation: senior unsecured, Baa1
Verizon New York, Inc.: notes and debentures,
Verizon New England, Inc.: notes and debentures,
Verizon Delaware, Inc.: debentures, A3
Verizon West Virginia, Inc.: debentures, A3
Verizon New Jersey, Inc.: debentures, A3
Verizon Pennsylvania, Inc.: debentures, A3
Verizon Maryland, Inc.: debentures, A3
Verizon North, Inc.: debentures, A3
Verizon Northwest, Inc.: debentures, A3
Verizon California, Inc.: debentures, A3
Verizon Virginia, Inc.: notes and debentures,
Verizon Florida, Inc.: debentures, Baa1
GTE Southwest, Inc.: first mortgage bonds, Baa1
Please refer to Moodys.com for additional research.
Headquartered in New York City, Verizon Communications Inc.
is the second largest telecommunications provider in the United States
delivering broadband and other wireline and wireless communication services
to residential, business, government and wholesale customers.
Verizon Wireless, headquartered in Basking Ridge, NJ is a
joint venture between Verizon Communications, which owns 55%,
and Vodafone, which owns the remainder. Headquartered in
Little Rock, Arkansas, ALLTEL Corporation operates the nation's
largest wireless network (by geography).
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
Corporate Finance Group
Moody's Investors Service
No Related Data.
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