Verizon Communications Debt Falls on Plan for Biggest Bond Sale

Bonds of Verizon Communications Inc. (VZ) fell as the carrier plans to issue as much as $50 billion of securities to help finance its purchase of Vodafone Group Plc’s 45 percent stake in Verizon Wireless.

The company’s $1.75 billion of 2.45 percent bonds maturing in 2022 dropped 1.2 cents to 87.1 cents on the dollar to yield 4.16 percent as of 4:27 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The cost to protect corporate bonds from default in the U.S. was little changed.

Verizon’s offering may exceed Apple Inc.’s record $17 billion issue in April, according to a person briefed on the company’s plans, who asked not to be identified citing lack of authorization to speak publicly. Proceeds would help fund its acquisition of Vodafone’s Verizon Wireless stake for $130 billion, giving it full control of the most profitable U.S. mobile-phone carrier in the biggest buyout in more than a decade.

“A solid industrial acquisition with both the ability and opportunity to pay down debt are interesting plays for bondholders,” said Joel Levington, managing director of corporate credit for Brookfield Investment Management Inc. in New York. “However, there will be such a glut of Verizon paper and that may limit total-return potential.”

Verizon’s bonds are the most actively traded dollar-denominated corporate securities by dealers today, accounting for 6.6 percent of the volume of dealer trades of $1 million or more as of 5:39 p.m. in New York, Trace data show.

Permanent Financing

Verizon’s $1.25 billion of 3.85 percent bonds due in November 2042 declined 1.7 cents to 78.4 cents on the dollar to yield 5.32 percent, Trace data show.

Credit-default swaps tied to the New York-based carrier’s debt were quoted at a mid-price of 83.5 basis points, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market.

JPMorgan Chase & Co., Morgan Stanley, Bank of America Corp. and Barclays Plc are supplying a $61 billion bridge credit facility, which Verizon plans to reduce “with the issuance of permanent financing,” the company said yesterday in a statement.

Verizon said it expects to maintain finances that are consistent with investment-grade credit. Moody’s Investors Service lowered its rank one level yesterday to Baa1, three steps above speculative grade, to reflect an increase in leverage, and Standard & Poor’s cut its rating to an equivalent BBB+.

Risk Premium

The cost to protect against losses on corporate bonds was little changed. The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, declined 0.5 basis point to a mid-price of 83.6 basis points as of 5:02 p.m. in New York, CMA data show.

The measure, which typically rises as investor confidence deteriorates, climbed 5.3 basis points last week, the biggest jump since the period ended Aug. 16. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, declined 4 basis points to 401.7, CMA data show.

Nokia Swaps

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries increased 1.9 basis points to 130.9, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 6.2 to 577.9.

Credit swaps tied to Nokia Oyj (NOK1V) dropped to the lowest level since June 2011 after Microsoft Corp. (MSFT) agreed to buy its handset unit and license its patents for 5.44 billion euros ($7.2 billion). Nokia’s five-year swaps plunged 320 basis points to 209, CMA data show.

The devices and services unit, which accounted for half of Nokia’s 2012 revenue, along with 32,000 employees, will transfer to Microsoft, the companies said. The sale removes a money-losing handset business and lets it focus on networking gear.

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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