takes out $ 25 billion in new debt to settle a bill for spectrum licenses due this month.
The mobile operator in February won more than half of wireless radio waves offered in a US government auction and promised $ 45.5 billion and approximately $ 8 billion in additional clearing payments to help existing license users move to other frequency bands. The new spectrum rights could help Verizon expand the range 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, which began Thursday, to raise the approximately $ 36.4 billion the FCC has through March 24 owed to settle, said CFO Matthew Ellis.
Verizon, the country’s largest airline in terms of subscribers, theoretically has enough funds to pay the FCC even without the bond sale. The company signed a $ 25 billion loan facility with a syndicate of banks in late February that it can draw on when needed, Ellis said. Verizon also has some cash left on a $ 12 billion bond sale in November that it could use to make the second payment to the FCC, Ellis said.
According to Fitch Ratings, the company held $ 22.2 billion in cash as of the end of December, as well as an undrawn credit facility of $ 9.4 billion.
In addition to the nearly $ 54 billion in 5G licenses and related items, Verizon announced Wednesday that it will spend a total of $ 10 billion in capital expenditures over the next three years to expand its midband or C-band Offer plans to use a number of airwaves so far limited to satellite communications. Much of that $ 10 billion will be paid for in cash from the growing business, Ellis said. “Cash generation will take care of these investments,” he said.
The $ 10 billion will come on top of the $ 17.5 billion to $ 18.5 billion Verizon previously budgeted for investments in 2021 that are expected to remain at similar levels through 2023, Verizon said.
Taking on new debt for the spectrum rights means Verizon will reduce its debt levels more slowly, Ellis said. The company’s net debt at the end of 2020 was $ 129.06 billion, up from $ 131.32 billion a year earlier, but higher than in previous years, the rating firm said
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U.S. companies have taken on record debt since the Federal Reserve took aggressive steps to stabilize financial markets during the coronavirus pandemic outbreak last spring. According to Dealogic, a data provider, US corporate bond sales reached $ 1.48 trillion in 2020, up more than 63% from 2019. This year, American companies raised $ 265.65 billion in bonds as of Thursday, up about 36% over the same period last year, Dealogic said.
Verizon’s net unsecured debt to earnings before interest, tax, depreciation and amortization ratio is expected to reach 2.8 times by year-end, the company said in an investor presentation on Wednesday. It will decline to about double that in the next four to five years, Verizon said.
“Verizon’s business is extremely stable and very liquid, so it can easily handle this debt,” said Peter Supino, senior analyst at brokerage firm Sanford C. Bernstein & Co. “They promised their creditors that they would repay debts for them the next few years so that they can return to a more flexible position, ”he said.
Still, Verizon’s debt could limit its strategic options, said Michael Hodel, an analyst at research firm Morningstar Research Services LLC.
Verizon expects to pay approximately $ 4 billion in interest payments to bondholders over the next three years after the debt sale completes, Ellis said. The company expects to offset the surge in interest charges with reduced cash tax payments, which are expected to be about $ 5 billion lower than previously planned, in part due to write-offs under the Tax Cuts and Jobs Act 2017, he said.
—Drew FitzGerald contributed to this article
Write to Nina Trentmann at [email protected]
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