Verizon Sells $6.5 Billion of Bonds to Refinance Debt

Verizon Communications Inc. took advantage of the lowest borrowing costs in about a year with a bond sale to push out maturities on some of its $23 billion of debt coming due over the next four years.

Proceeds from the $6.5 billion offering will help redeem notes maturing between 2015 and 2018, according to a regulatory filing. The sale, which may help reduce interest payments for the largest U.S. wireless carrier, included $2.5 billion portions of 10- and 20-year securities and $1.5 billion of seven-year notes, according to data compiled by Bloomberg.

“With rates so low, they’ll save on interest expense,” Dave Novosel, senior bond analyst at Gimme Credit LLC, said in a telephone interview.

Yields on investment-grade debentures have fallen 0.62 percentage point to 2.97 percent since Verizon issued a record-breaking $49 billion of corporate bonds in September 2013, according to the Bank of America Merrill Lynch U.S. Corporate Index. Average yields dropped to 2.89 percent on Oct. 15, the lowest level since May 2013, the data show.

Ray McConville, a spokesman for Verizon, declined to comment on the bond offering.

Verizon’s new 10-year bond was sold to yield 135 basis points, or 1.35 percentage points, more than similar-maturity Treasuries, Bloomberg data show.

That’s 90 basis points less than the relative yield of 225 basis points that Verizon paid to issue $11 billion of 10-year notes in September 2013’s offering, the data show.

Spreads Tighten

“Given where interest rates are and given that spreads are still pretty tight, it’s a good time to come to the corporate market to issue debt,” Novosel said.

Average spreads of corporate bonds in the U.S. rated BBB have declined about 40 basis points since September 2013, Bank of America Merrill Lynch index data show. Verizon is graded BBB+ by Standard & Poor’s, Bloomberg data show.

The company’s “financial profile is so strong that it’s difficult to turn down these type of spreads,” CreditSights Inc. analyst Chris Ucko said in a telephone interview.

An initially marketed five-year portion was dropped from the offering, according to a person with knowledge of the transaction, who asked not to be identified, citing lack of authorization to speak publicly.

Bonds of Verizon are the most actively traded dollar-denominated corporate securities by dealers, accounting for 5.9 percent of the volume of dealer trades of $1 million or more at 4:13 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The company’s new 4.4 percent, 20-year bonds priced at a spread of 145 basis points and the 3 percent, seven-year notes were sold at a 115 basis point margin, Bloomberg data show.

“We believe there is still a lot of cash to put to work on high-quality corporates,” said Dorian Garay, a New York-based money manager for an investment-grade debt fund at ING Investment Management.

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