Verizon Issues Debt - Analyst Blog

The largest wireless carrier in the North America, Verizon Communications Inc. (VZ) announced a debt issuance of  $6.25 billion. The issue will spread over five tranches of $1 billion three-year floating-rate notes, $1.5 billion three-year fixed-rate notes, $1.25 billion five-year fixed-rate bonds, $1.5 billion 10-year fixed-rate bonds and $1 billion of 30-year fixed-rate debt.

Verizon's debt sale represents its first debt sale since 2009 (issued $2.75 billion of 10 and 30 year debts in March 2009) and the second larget deal after the second-largest dollar-denominated debt sale in 2011.

The company expects to use the proceeds out of the issue to pay commercial paper debt as well as for general corporate purposes. Currently, the company has $3.7 billion of commercial paper outstanding, bearing interest at an average rate of 0.40%. Further, Verizon expects to sell up to $14 billion in common stock, preferred shares and debt.

Verizon exibits a strong balance sheet with $2 billion in cash and a reduced long-term debt of $45.3 billion from 46.1 billion in 2009. Currently, the company has net debt-to-EBITDA ratio of about 1.3 times.

Given the strong financial position, Verizon  is further set to  acquire information-technology and cloud-computing specialist Terremark Worldwide Inc. (TMRK) for $1.4 billion as reported in January and expects the deal to be completed by month end. Given the on going acquisition, the company has positioned itself for growth in cloud services.

The acquisition represents Verizon's enthusiasm to rapidly enter the cloud computing market that delivers corporate IT services over the Internet rather than an in-house IT department. The deal is expected to  support Verizon's growth initiatives in remote or cloud computing, an area in which it has been lagging competitors like AT&T Inc. (T).

Currently, we maintain long-term Neutral recommendation on Verizon with a Zacks #3 Rank (Hold).