Verizon Seeks Savings With $12 Billion Bond Offering

Verizon Communications Inc. is seeking to take advantage of borrowing costs that are near record lows to reduce its interest expense by swapping as much as $12 billion of new notes for existing debt.

The largest U.S. wireless carrier may save a total of between $100 million and $300 million through the exchange offer, said Dennis Saputo, senior vice president at Moody’s Investors Service in New York.

“They’re now trying to take advantage of the market,” said Michael Altberg, an analyst at S&P. “They issued a lot of debt at the time of the Vodafone transaction, and they issued some of that at a slightly higher price,” he said.

The company paid a premium on its record-breaking $49 billion bond sale in September, which was used to help fund its buyout of Vodafone Group Plc.’s 45 percent stake in Verizon Wireless.

Average yields on investment-grade, dollar-denominated corporate bonds fell to 2.99 percent as of yesterday from 3.59 percent in September when Verizon sold its unprecedented bond offering, according to the Bank of America Merrill Lynch U.S. Corporate Index.

“The markets are very receptive, especially to investment-grade and well-known names,” Saputo said.

Actively Traded

Robert Varettoni, a Verizon spokesman, declined to comment on the exchange offer.

Verizon’s $15 billion of 6.55 percent notes due 2043 rose 0.8 cent to 126.8 cents on the dollar to yield 4.8 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds traded at the highest price in almost two months.

The securities are among the eleven Verizon is offering to exchange, according to a company statement yesterday. The hypothetical total exchange price for the 6.55 percent notes is 127.9 cents on the dollar, according to the statement.

The carrier’s bonds were the most actively traded dollar-denominated corporate notes by dealers today, accounting for 6.1 percent of the volume of dealer trades of $1 million or more, according to Trace.

‘Positive Development’

The exchange would be “a positive development for Verizon’s financial flexibility,” according to a report today from Moody’s analysts led by Saputo.

Moody’s expects to rank the bonds Baa1, and Standard & Poor’s graded the proposed securities an equivalent BBB+.

The bond issue may match Apple Inc.’s $12 billion offering in April, which at the time was the biggest dollar-denominated corporate bond sale of 2014, according to data compiled by Bloomberg.

Verizon sold $4.5 billion of notes in March to retire near-term debt. That deal led to total savings “in the $100 million to $200 million range,” Altberg said.

The timing may be even better now, according to Saputo. “There’s a lot of liquidity, it makes enormous sense. Everyone is going to be happy,” he said.

(Updates with potential savings in second paragraph.)
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