AT&T Inc. and Verizon Communications Inc. long-term corporate credit ratings were cut by Standard & Poor’s, which said the two biggest U.S. phone companies won’t be able to reduce their ratio of debt to earnings quickly enough.
Each company was lowered one step to A-, four levels above junk status, S&P said today in separate statements. The ratings company removed both from its “negative implications” designation. The ratings are S&P’s lowest in 20 years for Verizon and seven years for AT&T.
The carriers are trying to cope with losses in land-line clients by adding more customers for mobile, TV and Internet service. The fixed-line unit at Dallas-based AT&T is “pressured” by competition from cable companies and wireless carriers, and Verizon faces similar conditions, S&P said.
S&P said it expects share repurchases by AT&T to limit its debt reduction. Verizon, based in New York, will trim maturing debt in the next two years using cash from operations, which would provide “stability” to its rating, S&P said.
“AT&T continued to maintain a strong balance sheet, deliver strong cash flows and reduce debt” through last quarter, McCall Butler, a spokeswoman for the carrier, said in an e-mail. “We have continued to have no difficulty accessing the credit markets at favorable rates.”
AT&T fell 19 cents to $28.30 at 4:15 p.m. in New York Stock Exchange composite trading. Verizon dropped 1 cent to $32.89.
“Verizon has made significant strides in debt reduction over the past two years, and we are very comfortable with our efforts to balance our ongoing reduction in leverage and our return of capital to our shareholders,” Bob Varettoni, a spokesman for the company, said in an e-mail.
Credit-default swaps on Verizon Wireless Capital, a Verizon unit, fell after Shaw Wu, a Kaufman Brothers LP analyst, said in a report today that Verizon Wireless may reach an agreement with Apple Inc. to prevent Sprint Nextel Corp. and T-Mobile USA from offering the iPhone. Verizon Wireless, the biggest U.S. mobile-phone carrier, is co-owned by Verizon Communications and Vodafone Group Plc.
The swaps fell 6.5 basis points to 47.3 at 2:30 p.m. in New York, according to data provider CMA. Swaps on Verizon Communications fell 1.1 basis points to 73.1. 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.