Oct. 7 (Bloomberg) -- The cost of protecting Alltel Corp.'s bonds from default has doubled over the past two weeks, signaling some investors may be concerned Verizon Wireless will abandon its purchase of the rural mobile-phone company.

Credit-default swaps on Little Rock, Arkansas-based Alltel climbed to 226.8 basis points today from 113.4 points on Sept. 25, according to CMA Datavision in New York. The swaps traded at 91.6 basis points June 6, a day after Verizon agreed to buy Alltel for $5.9 billion in cash and $22.2 billion in debt.

Alltel has about $7.7 billion in bank loans due this year, meaning the company has to either pay off the debt or refinance it. Refinancing has grown difficult for some borrowers amid the worst banking crisis since the Great Depression, forcing the U.S. government to commit $700 billion to bailing out troubled financial firms.

``These are unprecedented times, and a deal of this magnitude will require a significant amount of capital,'' said Chris Diceman, a credit analyst with Dominion Bond Rating Service in Toronto. Verizon probably has enough cash to complete the transaction, said Diceman, who has an A rating on Verizon's long-term debt.

Credit-default swaps are financial instruments used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A price increase indicates deterioration in the perception of credit quality. A decline shows the opposite.

Biggest Carrier

The difference between Alltel and Verizon's credit-default swaps has widened to 107 basis points from as low as 11 points in June, according to CMA Datavision, a market data provider.

The acquisition would help Verizon Wireless, jointly owned by Verizon Communications Inc. and Vodafone Group Plc, surpass AT&T Inc. to become the biggest mobile-phone company in the U.S. The carrier expects to eventually save as much as $1 billion annually by reducing advertising and roaming costs.

Verizon has said it expects to complete the transaction by the end of the year. Verizon spokesman Jim Gerace and Alltel representative Andrew Moreau didn't immediately respond to requests for comment.

Verizon Communications, based in New York, fell $1.07 to $28.89 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have fallen 34 percent this year.

Goldman Sachs Group Inc. and TPG Inc., the sellers, bought Alltel last year in a leveraged buyout valued at $24.7 billion. Verizon Communications generated free cash flow of $2.49 billion in the three months ended in June. The carrier had $9.3 billion in debt due within a year as of that period.

Market Worried

``The market seems to be worried that Verizon will choose to walk away rather than refinance at a higher rate,'' Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York, said in a telephone interview.

Credit dried up globally after the collapse of Wall Street firms such as Lehman Brothers Holdings Inc. raised concern about which firm might fail next. Banks have incurred almost $600 billion in credit losses and asset writedowns from the deterioration of the subprime mortgage market.

Verizon had planned to borrow $5 billion from Morgan Stanley to buy bridge loans that financed the LBO at a 4 percent discount to face value, a banker with knowledge of the terms said when the Verizon-Alltel accord was announced. The company had expected to repay $13.8 billion of Alltel's term loans at full value.

Morgan Stanley has parceled out the loan to other lenders, according to a person with knowledge of the matter, who declined to be identified because the terms are private.

To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net

Last Updated: October 7, 2008 17:12 EDT