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Fitch Affirms Verizon's IDR at 'A'; Outlook Stable

Friday, May 17, 2013 4:44 PM


Fitch Ratings has affirmed Verizon Communications Inc.'s (NYSE: VZ) Issuer Default Ratings (IDRs) and debt ratings as follows:

--Long-term IDR at 'A';
--Senior unsecured debt at 'A';
--Senior unsecured bank facility at 'A';
--Short-term IDR at 'F1';
--Commercial paper at 'F1'.

The Rating Outlook is Stable.

In addition, Fitch has reviewed and affirmed the ratings of certain VZ subsidiaries. A detailed list of the affirmations follows at the end of this release.

KEY RATING DRIVERS

--VZ's ratings are supported by strong free cash flows (FCF) which, in turn, provide the company flexibility with respect to operating within its target leverage range of 1.3 times (x)-1.4x. This leverage range is conservative relative to Fitch's expectations of around 1.5x for the category.

--VZ has significant scale and scope in its domestic wireline and wireless businesses and a high proportion of revenues from wireless and wireline growth areas.

--An important component of VZ's ratings is the expectation for continued relatively strong growth in Verizon Wireless' (VZW) revenue, EBITDA, and FCF. In the first quarter of 2013, the domestic wireless segment produced approximately 67% of total consolidated revenues.

--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.

VZ's gross leverage for the last 12 months (LTM) ending March 31, 2013 was approximately 1.4x. Consolidated cash balances rose to $5.5 billion on March 31, 2013 from $3.1 billion at Dec. 31, 2012. In 2012, a total of $18.5 billion in distributions were paid by VZW to its partners in proportion to their ownership. In the aggregate, in 2012 approximately $8.3 billion of VZW's dividends were paid to VZW's 45% owner, Vodafone Group Plc, with the remainder retained by VZ. VZW has declared a $7 billion distribution to be paid in June 2013. Fitch does not believe potential future distributions of FCF will impact the credit profile of VZ or VZW, as VZW has ample financial flexibility to fund special distributions. For the LTM ending March 31, 2013, VZW's simple FCF (EBITDA less capital spending) was approximately $22.1 billion.

There is event risk regarding VZ's potential acquisition of Vodafone 45% interest in VZW, as there would be concerns with regard to its initial outlay and financing. At the current time, the companies continue to be committed to the partnership.

At March 31, 2013, VZ had $52.9 billion in debt on a consolidated basis. Of this amount, $9.7 billion was maturing long-term debt and $1.1 million was commercial paper (CP). 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 in August 2016. After the effect of letters of credit (LOCs), approximately $6.1 billion is available on the facility. On a consolidated basis, VZ and its subsidiaries have scheduled debt maturities of approximately $3.7 billion and $6.8 billion in 2013 and 2014, respectively.

For the LTM ended March 31, 2013, FCF after dividends and capital spending (but prior to the VZW distributions to Vodafone) was approximately $11.4 billion. In 2013, Fitch expects VZ's FCF (after capital spending and dividends but prior to any distributions to Vodafone) to be in the $11 billion to $12 billion range, an increase from the $10.1 billion generated in 2012. Fitch believes that as FCF continues to grow, and in the absence of other investment alternatives, the company will have the flexibility to repurchase stock within the context of maintaining leverage within its 1.3x-1.4x target range.

In 2013, Fitch expects consolidated capital spending to approximate 2012 levels, when spending totaled approximately $16.2 billion. The company's guidance has called for capital spending as a percent of revenues to decline slightly in 2013 relative to 2012. VZ has not provided capital spending guidance by business segment for 2013. In 2013, key areas of capital spending will consist of the continued buildout of advanced networks, including the 4G wireless network and FiOS, as well as core network spending on IP and data center enhancements.

RATING SENSITIVITIES

A positive rating action could occur if:

--Fitch believes a positive rating action is unlikely, given the industry's business and technological risks.

A negative rating action could occur if:

--The rating could be negatively affected by heightened wireless competition. Fitch believes there is a relatively low probability that VZW's competitive position will become weaker than the wireless industry as a whole;

--Potential event risk regarding Vodafone's 45% stake in VZW.

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'.

Verizon Wireless Capital LLC

--IDR at 'A';

--Senior unsecured debt (co-issued with Cellco Partnership) at 'A'.

Alltel Corp.
GTE Corp.
Verizon Delaware
Verizon California
Verizon Florida
Verizon Maryland
Verizon New England
Verizon New Jersey
Verizon New York
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'.

Fitch has withdrawn the following rating:

Alltel Communications Inc.
--IDR at 'A'.

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

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Rating Telecom Companies - Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research

Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Rating Telecom Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=791465

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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

(Source: Business Wire )
(Source: Quotemedia)

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