June 5 (Bloomberg) -- TPG Inc. and Goldman Sachs Group Inc. are in talks to sell Alltel Corp., the wireless provider they took private seven months ago for $27 billion in a deal that left lenders holding most of the debt.

Verizon Wireless is in advanced talks to buy Alltel, according to a statement today by Vodafone Group Plc, which owns 45 percent of New York-based Verizon Communications Inc.'s mobile unit. The combination would overtake AT&T Inc. to be the biggest U.S. wireless company.

TPG and Goldman's buyout unit would receive a slight premium to the equity invested in the Little Rock, Arkansas- based company, said one person familiar with the negotiations, who asked not to be identified because the talks may not result in a transaction. The LBO's lenders, including New York-based Citigroup Inc. and Goldman, would have the debt they hold redeemed at a discount to face value.

Banks are under pressure to get LBO loans off their books after taking more than $386 billion in asset writedowns and credit losses triggered by the collapse of subprime mortgages. They are sitting on more than $77 billion of loans from the buyout boom of 2006 and 2007, according to New York-based research firm CreditSights Inc., down from a peak of $230 billion last year. Some has been sold at a discount to private- equity firms such as Fort Worth, Texas-based TPG.

`Great' Deal

``This would be great for the banks and debt holders if a deal goes through,'' Ping Zhao, an analyst at CreditSights, said yesterday in a telephone interview. The banks hold a majority of the debt they committed to the LBO, she said.

There is no assurance that a deal will be reached, Vodafone said today.

The lenders, which also included London-based Barclays Plc and Royal Bank of Scotland Group Plc in Edinburgh, provided Alltel with $24 billion of loans and bridge financing, according to a U.S. Securities and Exchange Commission filing in May 2007. TPG and Goldman committed $4.6 billion in equity.

The banks sold $3.2 billion of loans after the LBO closed, according to ratings firm Standard & Poor's in New York. In December, investors bought $1 billion of Alltel bonds, the company said in the SEC filing.

Challenging AT&T

A deal would make the New York-based company's Verizon Wireless unit the top mobile-telephone provider in the U.S., passing AT&T Inc. and adding Alltel's rural operations, which make up the country's biggest geographic network. Chief Executive Officer Ivan Seidenberg is relying on Verizon Wireless as customers scrap land lines.

``All of the U.S. operators are racing to increase their exposure to wireless because it has the best growth prospects of anything in their portfolio,'' said Craig Moffett, an analyst with Sanford C. Bernstein & Co. in New York.

Verizon rose 32 cents to $37.30 at 9:43 a.m. in New York Stock Exchange composite trading. Before today, the shares had lost 15 percent this year, more than the 7.4 percent drop at AT&T. Vodafone shares fell as much as 3 percent to 150 pence in London today and traded at 152.6 pence as of 2:46 p.m.

Credit-default swaps tied to Verizon's bonds jumped 17 basis points to 75 basis points yesterday, CMA Datavision prices show, the biggest one-day increase in almost two years. At those spreads it would cost investors $75,000 to insure $10 million of Verizon debt against default for five years.

In comparison, investors would pay $249,000 to protect $10 million of Alltel debt from default within five years. Before the Verizon speculation, investors had to pay $629,000 to protect $10 million of the debt. Verizon is rated A3 by Moody's Investors Service, eight notches higher than Alltel, which is rated B2.

`Zero Sense'

``It makes zero sense for Verizon to buy Alltel for a higher price than the private-equity firms paid,'' said Zhao. ``Prices haven't risen since the deal was struck.''

TPG, formerly Texas Pacific Group, and New York-based Goldman, the most profitable securities firm, agreed in May 2007 to acquire Alltel. The LBO, the biggest in the telecommunications industry, closed in November. Since then, Alltel has picked up users, closing last quarter with more than 13 million customers. Alltel subscribers are mainly in rural areas and it carries calls for customers of AT&T and Verizon where they lack coverage, leading to speculation when the buyout was announced that a bigger rival would eventually purchase the company.

Reduce Expenses

Christopher King at Stifel Nicolaus & Co. in Baltimore said yesterday a purchase by Verizon, could lower expenses by as much as $1 billion a year by eliminating roaming charges and duplicate transmitters.

Before the buyout, CEO Scott Ford spun off Alltel's land- line unit and built the wireless business with the $4.5 billion purchase of Western Wireless Corp. in 2005 and Midwest Wireless Holdings LLC for $1.08 billion in 2006.

Verizon's Seidenberg also has emphasized wireless in the face of competition from cable companies such as Comcast Corp. Verizon added 1.5 million mobile users last quarter, beating the 1.3 million new users at AT&T.

Verizon ended the period with 67.2 million total wireless customers. AT&T had 71.4 million.

To contact the reporters on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net

Last Updated: June 5, 2008 09:50 EDT