Credit-default protection on Verizon Communications and its subsidiary Verizon Wireless tightened last week amid growing speculation that the Federal Communications Commission will allow wireless operators to pull out of a nearly USD16 billion sale of licenses. Five-year protection on Verizon, the U.S. local phone company, tightened by roughly 70 basis points Thursday while protection on its wireless unit narrowed by about 100bps, according to traders in New York. The parent tightened to roughly 270bps Thursday from 340bps the previous day, while the less-liquid Verizon Wireless tightened to 340bps from about 440bps.
Rumors spread last week that the FCC may let mobile phone operators back out of bids they made for wireless licenses in January of last year, and such a move would be a boon to wireless companies strapped for cash. One trader said: "This government sponsored financial relief is going to generate additional cashflow and take some of the ratings pressure off them."
Patricia Lee, an analyst at independent research firm CreditSights in New York, agreed that the regulatory move would have a significant and positive impact on Verizon's credit profile. "For a company like Verizon that doesn't really need the additional spectrum, they already have well-established footprints, this removes an overhang," she said, adding, "coming up with USD8 billion would have obviously hurt their liquidity." However, she noted that there are still other credit concerns on both Verizon units, noting that Moody's Investors Service put the telecom company on watch for downgrade for other factors including Vodafone Group's put option on Verizon Wireless. "Even with this [positive news], Verizon is probably looking at a one-notch downgrade, but otherwise it would have been two notches," she said.
Moody's rates Verizon A1 on negative watch and Standard & Poor's rates it A plus, also with a negative outlook.
Five-Year Credit Protection On Verizon Global Funding
