Verizon Wireless 2008 Annual Report Download - page 28

S&Passignsan‘A’CorporateCreditRatingandan‘A-1’short-termdebt
rating to Verizon Communications. In early June 2008 S&P revised
its outlook on Verizon’s ratings to negative from stable following the
announcement of the agreement to acquire Alltel. At the same time, S&P
affirmedallVerizon’sratings,includingits‘A’CorporateCreditRating,‘A-1’
short-termratingandthe‘A’CorporateCreditRatingonCellcoPartnership
(d/b/a Verizon Wireless). In November 2008 S&P affirmed the ‘A’ Corporate
CreditRatingwithanegativeoutlookonCellcoPartnershipandVerizon
Communications.
Moody’s Investors Service (Moody’s) assigns an ‘A3’ long-term debt
rating and a ‘P-2’ short-term debt rating to Verizon Communications. In
June2008Moody’splacedVerizonon“ReviewforPossibleDowngrade”
following the announcement of the agreement to acquire Alltel. In
October 2008 Moody’s concluded its review and revised the outlook on
Verizon Communication’s ratings from stable to negative. The ‘P-2’ short-
term rating was affirmed. In November 2008 Moody’s initiated a Cellco
Partnership (d/b/a Verizon Wireless) long-term debt rating of ‘A2’ with a
negative outlook.
FitchRatings(Fitch)assignsan‘A’long-termIssuerDefaultRatingandan
‘F1’ short-term rating with stable outlook to Verizon Communications.
InJune2008FitchplacedVerizonCommunicationson“RatingWatch
Negative” following the announcement of the Alltel acquisition. In
November 2008 Fitch downgraded the long-term debt rating of Verizon
to ‘A’ from ‘A+’ with a stable outlook, affirmed the ‘F1’ short-term rating
andremovedVerizon’sratingsfrom“RatingWatchNegative”.Inthatsame
action, Fitch initiated a Cellco Partnership (d/b/a Verizon Wireless) rating
at ‘A’ with a stable outlook.
While we do not anticipate a ratings downgrade, the three primary rating
agencies have identified factors which they believe could result in a rat-
ings downgrade for Verizon Communications and/or Cellco Partnership in
the future including sustained leverage levels at Verizon Communications
and/or Cellco Partnership resulting from: (i) diminished wireless oper-
ating performance as a result of a weakening economy and competitive
pressures; (ii) failure to achieve significant synergies in the Alltel integra-
tion; (iii) accelerated wireline losses; or (iv) a material acquisition or sale
of operations that causes a material deterioration in its credit metrics. A
ratings downgrade would increase the cost of refinancing existing debt
and might constrain Verizon Communications’ access to certain short-
term debt markets.
Both the Verizon Wireless Three-Year Term Credit Facility and $12.5 billion
BridgeFacilitycontaincovenantsincludingaLeverageRatioof3.25:1as
defined in the agreement. Each also contains events of default that are
customary for companies maintaining an investment grade credit rating.
As of December 31, 2008, we and our consolidated subsidiaries were in
compliance with all of our debt covenants.
Common stock has been used from time to time to satisfy some of the
funding requirements of employee and shareowner plans. On February 7,
2008, the Board of Directors replaced the current share buy back program
with a new program for the repurchase of up to 100 million common
shares terminating no later than the close of business on February 28,
2011. The Board also determined that no additional shares were to be
purchased under the prior program. We repurchased $1.4 billion, $2.8 bil-
lion and $1.7 billion of our common stock during 2008, 2007 and 2006,
respectively.
As in prior periods, dividend payments were a significant use of cash flows
from operations in 2008. We determine the appropriateness of the level
of our dividend payments on a periodic basis by considering such fac-
As of December 31, 2008, we had approximately $5.6 billion of unused
bank lines of credit consisting of a three-year committed facility that
expires in September 2009. We also entered into a vendor provided credit
facility that provided $0.2 billion of financing capacity. We have a shelf
registration available for the issuance of up to $6.8 billion of additional
unsecured debt or equity securities.
In addition to the repayments of the $7.6 billion 364-Day Credit Agreement,
we made other debt repayments of approximately $4.1 billion in 2008,
including $0.2 billion of 5.55% notes issued by Verizon Northwest Inc.,
$0.1 billion of 6.0% notes issued by Verizon South Inc., $0.3 billion of 6.0%
notes issued by Verizon New York, $0.1 billion of 7.0% notes issued by
Verizon California Inc., $0.3 billion of 6.9% notes issued by Verizon North
Inc., $0.3 billion of 5.65% notes issued by Verizon North Inc., and $3.0
billion of other corporate borrowings, which included the repayment
ofRuralCellular’sdebtand$1.0billionofVerizonCommunicationsInc.
4.0% notes. As a result of the spin-off of our local exchange business and
related activities in Maine, New Hampshire and Vermont, in March 2008,
our net debt was reduced by approximately $1.4 billion.
Our total debt was reduced by $5.2 billion in 2007. We repaid approxi-
mately $1.7 billion of Wireline debt, including the early repayment of
previously guaranteed $0.3 billion 7.0% debentures issued by Verizon
South Inc. and $0.5 billion 7.0% debentures issued by Verizon New
England Inc., as well as approximately $1.6 billion of other borrowings.
Also, we redeemed $1.6 billion principal of our outstanding floating rate
notes, which were called on January 8, 2007, and the $0.5 billion 7.9%
debentures issued by GTE Corporation. Partially offsetting the reduction
in total debt were cash proceeds of $3.4 billion in connection with fixed
and floating rate debt issued during 2007.
Cash of $1.9 billion was used to reduce our debt in 2006. We repaid $6.8
billion of Wireline debt, including premiums associated with the retire-
ment of $5.7 billion of aggregate principal amount of long-term debt
assumed in connection with the MCI merger. The Wireline repayments
also included the early retirement/prepayment of $0.7 billion of long-
term debt and $0.2 billion of other long-term debt at maturity. We repaid
approximately $2.5 billion of Domestic Wireless 5.375% fixed rate notes
that matured on December 15, 2006. Also, we redeemed the $1.4 bil-
lion accreted principal of our remaining zero-coupon convertible notes
and retired $0.5 billion of other corporate long-term debt at maturity.
These repayments were partially offset by our issuance of long-term debt
resulting in cash proceeds of approximately $4.0 billion, net of discounts,
issuance costs and the receipt of cash proceeds related to hedges on the
interest rate of an anticipated financing. In connection with the spin-off
of our domestic print and Internet yellow pages directories business, we
received net cash proceeds of approximately $2.0 billion and retired debt
in the aggregate principal amount of approximately $7.1 billion.
Our ratio of debt to debt combined with shareowners’ equity was 55.5%
at December 31, 2008 compared to 38.1% at December 31, 2007.
The amount of cash that we need to service our debt substantially
increased with the acquisition of Alltel. Our ability to make payments on
our debt will depend largely upon our cash balances and future operating
performance. While we anticipate the challenging credit environment to
continue in 2009, we do not expect this to have a material impact on our
ability to obtain financing due to our investment grade ratings which we
expect to maintain. The debt securities of Verizon Communications and
its subsidiaries continue to be accorded high ratings by the three primary
rating agencies.
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Management’s Discussion and Analysis
ofFinancialConditionandResultsofOperations continued