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Fitch Rates Verizon's Sr. Unsecured Offering 'A-'; Outlook Stable
May 12, 2017 / 9:01 PM / 5 months ago

Fitch Rates Verizon's Sr. Unsecured Offering 'A-'; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, May 12 (Fitch) Fitch Ratings has assigned an 'A-' rating to Verizon Communications Inc.'s (NYSE: VZ) issuance of $1.5 billion senior unsecured floating rate notes due 2020. Proceeds will be used for general corporate purposes, which may include the repayment of outstanding debt. Verizon's Long-Term Issuer Default Rating (IDR) is 'A-', and the Rating Outlook is Stable. KEY RATING DRIVERS Competitive Position: The ratings are supported by Verizon Wireless's (VZW) strong competitive position, as evidenced through industry-low churn rates, high margins and the extensive coverage of approximately 98% of the U.S. population with its 4G LTE network. These factors are balanced against moderately high leverage for the rating, which stems from the February 2014 acquisition of the remaining 45% stake in VZW, as well as the intensely competitive wireless environment. Core Telecom Leverage: Including the effects of the Yahoo acquisition and data center sale, Fitch expects Verizon's core telecom leverage and total adjusted debt/EBITDAR to remain relatively stable in 2017, relative to year-end 2016 core telecom leverage of 2.4x and total adjusted debt/EBITDAR was 3.0x. Core telecom leverage excludes securitizations (both off-balance-sheet and public/144A and on-balance-sheet asset-backed securitizations). Securitizations are included in total adjusted debt/EBITDAR measures. Pending Yahoo! Acquisition: Verizon's acquisition of Yahoo! Inc.'s operating businesses is expected to close in the second quarter of 2017 (2Q17). In February 2017, the two parties amended their agreement following an investigation into two potentially separate incidents regarding the loss of certain customer data. The amended agreement lowered the price by $350 million to approximately $4.48 billion (subject to closing adjustments) and amended the terms regarding post-close liabilities. Data Center Sale: Verizon completed the $3.6 billion sale of its U.S. and Latin American data center sites to Equinix, Inc. on May 1, 2017. Straight Path Communications: Verizon has agreed to acquire the company in a $3.1 billion in an all-stock transaction. Straight Path holds millimeter wave licenses nationwide in the 39 GHz band and licences in major markets in the 28 GHz. The spectrum will be used to accelerate the deployment of 5G wireless services. KEY ASSUMPTIONS --Fitch assumes modest revenue and EBITDA growth for Verizon over the next few years as the effects of the transition to unsubsidized wireless service pricing and unlimited service plans wind down and as acquisitions contribute to growth. --Debt reduction in the core business, combined with EBITDA growth, is expected to reduce core telecom leverage. --VZW will continue to generate strong free cash flow (FCF) on an operational basis. VZW's simple FCF (EBITDA less capital spending) for the LTM ending March 31, 2017 was approximately $27.4 billion. --Fitch expects VZW's consolidated capital spending in 2017 to be within company guidance of $16.8 billion to $17.5 billion. Investment in the wireless network, including related investments in fiber, continues to be an area of emphasis due to the strong demand for 4G LTE capacity for rapidly growing data services. RATING SENSITIVITIES Positive Rating Action: Fitch believes a positive rating action is unlikely in the foreseeable future, given current levels of leverage. Negative Rating Action: Fitch may take a negative rating action if operating performance causes deleveraging to take place at a materially slower-than-anticipated pace, either alone or in combination with material debt-financed acquisitions. Discretionary management moves that cause core telecom leverage to rise above 2.5x, such as another material acquisition or stock repurchases, could lead to a negative action in the absence of a strong commitment to deleveraging. LIQUIDITY Strong Liquidity Profile: Verizon's liquidity is supported by its reported consolidated cash balance, which was $4.3 billion at March 31, 2017, and by its undrawn revolving credit facility (RCF). The RCF has availability of $9 billion and matures in September 2020. Fitch expects Verizon to maintain aggregate commercial paper (CP) balances within a level fully backed by the RCF. The credit facility has no ratings triggers or other restrictive financial covenants, such as leverage or interest coverage tests. Verizon's cash from operations in 2017 will be negatively affected by wireless handset financing under the equipment installment programs, as the public securitizations funding handset sales beginning in 3Q16 are recorded in cash from financing activities. Debt Maturities: On a consolidated basis, as of March 31, 2017, Verizon and its subsidiaries had expected debt maturities (excluding capital leases) of approximately $1.8 billion and $5.2 billion in 2017 and 2018, respectively. Contact: Primary Analyst John Culver, CFA Senior Director +1-312-368-3216 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Bill Densmore Senior Director +1-312-368-3125 Committee Chairperson Michael Weaver Managing Director +1-312-368-3156 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. Date of Relevant Rating Committee: July 26, 2016 Summary of Financial Statement Adjustments - Financial statement adjustments that depart materially from those contained in the published financial statements of the relevant rated entity or obligor are disclosed below: --Securitized equipment installment receivables are not included in core telecom leverage and are included in off-balance sheet debt. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015) here Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. 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