Verizon Launches $25 Billion Bond Sale to Pay for 5G Spectrum -- Update
12 March 2021 - 9:46AM
Dow Jones News
By Nina Trentmann
Verizon Communications Inc. is raising $25 billion in new debt
to help it settle a bill for spectrum licenses coming due this
month.
The cellphone carrier in February won more than half of the
wireless airwaves offered in a U.S. government auction and pledged
$45.5 billion for them, plus roughly $8 billion in additional
clearing payments to help existing license users move to other
bands. The new spectrum rights could help Verizon expand the reach
and bandwidth of its fifth-generation wireless offering.
Verizon paid a first installment of $8.2 billion to the Federal
Communications Commission on Wednesday, and will use the proceeds
of the bond sale launched Thursday to pay the roughly $36.4 billion
owed to the FCC by March 24, Chief Financial Officer Matthew Ellis
said.
Verizon, the country's largest carrier in terms of subscribers,
theoretically has enough funds to pay the FCC even without the bond
sale. The company in late February agreed to a $25 billion
term-loan facility with a consortium of banks that it can draw down
on if needed, Mr. Ellis said. Verizon also has some money left from
a $12 billion bond sale in November and could use those funds for
the second payment to the FCC, Mr. Ellis said.
The company held $22.2 billion in cash on the balance sheet at
the end of December, plus an undrawn credit facility of $9.4
billion, according to Fitch Ratings.
On top of the nearly $54 billion for 5G licenses and related
items, Verizon told investors Wednesday that it plans a total of
$10 billion in capital expenditures for expanding its midband, or
C-band, range over the next three years, a swath of airwaves
previously restricted to satellite communications. A large chunk of
that $10 billion will be paid for with cash from its growing
business, Mr. Ellis said. "Cash generation will take care of these
investments," he said.
The $10 billion will be in addition to the $17.5 billion to
$18.5 billion that Verizon previously budgeted for capital
expenditures in 2021, which are expected to continue at similar
levels through 2023, Verizon said.
Taking on new debt for the spectrum rights means Verizon will be
slower to reduce its debt levels, Mr. Ellis said. The company's net
debt stood at $129.06 billion at the end of 2020, down from $131.32
billion a year earlier but higher than in previous years, according
to ratings firm S&P Global Inc.
U.S. companies have raised record amounts of debt since the
Federal Reserve took aggressive action to stabilize financial
markets during the onset of the coronavirus pandemic last spring.
Bond sales by U.S. companies hit $1.48 trillion in 2020, up more
than 63% compared with 2019, according to Dealogic, a data
provider. This year, American firms raised $265.65 billion in bonds
through Thursday, up about 36% from the prior-year period, Dealogic
said.
The ratio of Verizon's net unsecured debt to earnings before
interest, taxes, depreciation and amortization is expected to hit
2.8 times by the end of the year, the company said in an investor
presentation Wednesday. It is set to decline to about two times in
the coming four to five years, Verizon said.
"Verizon's business is highly stable and highly cash generative,
so it can handle that debt easily," said Peter Supino, a senior
analyst at brokerage firm Sanford C. Bernstein & Co. "They've
promised their credit raters that they will pay down debt for the
next few years so that they will return to a more flexible
position," he said.
Still, Verizon's debt could limit its strategic options, said
Michael Hodel, an analyst at research provider Morningstar Research
Services LLC.
Verizon in the coming three years expects to pay about $4
billion more in interest payments to bondholders after the debt
sale goes through, Mr. Ellis said. The company expects to offset
the increase in interest charges with reduced cash tax payments,
which are forecast to come in about $5 billion lower than
previously planned in part due to depreciation allowances under the
2017 Tax Cuts and Jobs Act, he said.
Drew FitzGerald contributed to this article
Write to Nina Trentmann at nina.trentmann@wsj.com
(END) Dow Jones Newswires
March 11, 2021 17:31 ET (22:31 GMT)
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