OREANDA-NEWS. Fitch Ratings has affirmed Verizon Communications Inc.'s (NYSE: VZ) Issuer Default Ratings (IDRs) and debt ratings as follows:

--Long-term IDR at 'A-';
--Senior unsecured debt at 'A-';
--Senior unsecured bank facility and term loan at 'A-';
--Short-term IDR at 'F2';
--Commercial paper (CP) at 'F2'.

The Rating Outlook is Stable.

In addition, Fitch has placed the following issuers and their debt securities on Rating Watch Negative:

Verizon California
Verizon Florida
--IDR 'A-';
--Senior unsecured 'A-'.

GTE Southwest
--IDR 'A-';
--First mortgage bonds 'A-'.

Other subsidiary ratings were affirmed as follows at the end of this release.

The affirmation of Verizon's IDR and debt ratings reflects Fitch's expectation that the company will remain on virtually the same delevering path following its plans to sell assets in its wireless and wireline businesses, pay for spectrum and repurchase common stock. Slightly more than 50% of the asset sale proceeds will be primarily used to retire debt.

In the wireless business, Verizon has a definitive agreement with American Tower Corp. whereby Verizon will lease, through a master prepaid lease, more than 11,300 towers. Verizon will also sell 165 towers outright American Tower Corp. The transaction represents nearly all of Verizon's owned tower portfolio. The transaction is expected to raise approximately \$5 billion in cash and will close within 60 to 90 days. The second asset sale involves its wireline operations in California, Texas and Florida, which are being sold to Frontier Communications Corp. In total, these operations produce less than 5% of consolidated revenues (and less than 4% of consolidated EBITDA). The wireline subsidiaries have a nominal amount of debt (\$600 million) and this debt will travel with the subsidiaries being sold. The value of this transaction totals approximately \$10.5 billion, and net after-tax proceeds of \$6.8 billion are expected. The transaction is not expected to close until 2016 due to the lengthy regulatory approval process.

Verizon also announced the repurchase of \$5 billion of common stock through an accelerated stock repurchase (ASR) program. Out of \$11.8 billion in net cash proceeds from the two transactions, \$6.8 billion will be allocated to debt reduction and \$5 billion will go toward stock repurchases.

To pay for AWS-3 spectrum for which Verizon was the winning bidder in the Federal Communications Commission's (FCC) auction, Fitch expects Verizon to use cash on hand and proceeds from a term loan. Cash on hand amounted to \$10.6 billion at year-end 2014. The remaining amount, net of a \$900 million upfront payment in 2014, is \$9.5 billion and due in two installments with the final payment on March 2.

KEY RATING DRIVERS

--The February 2014 acquisition of the remaining Verizon Wireless (VZW) stake has pressured Verizon's recent credit metrics, pushing pro forma leverage at closing to approximately 2.6x. Gross leverage at Dec. 31, 2014 was 2.6x, with total debt at \$113.3 billion. Net leverage was approximately 2.3x, and incorporates cash of \$10.6 billion at yearend.

--Going forward, Fitch expects Verizon to materially reduce debt over the next few years. Debt reduction, combined with EBITDA growth, is expected to reduce leverage to a level appropriate for the rating in the 2016/2017 timeframe due to Verizon's strong position in the wireless industry and the significant cash flows generated by the wireless business. This is in combination with Verizon management's commitment to delever, which has been demonstrated in the past as evidenced by the aggressive delevering following the acquisition of Alltel Corporation in early 2009.

--A key to debt reduction over the next several years will be the continued generation of strong free cash flow (FCF) at VZW. VZW's simple FCF (EBITDA less capital spending) for 2014 was approximately \$24.7 billion. Owing to the acquisition of the remaining VZW stake, Verizon's FCF (after dividends and capital spending) was affected by transaction-related interest costs, higher dividend requirements due to the shares issued to Vodafone equity holders, and higher cash taxes. Despite these factors, 2014 FCF of \$6 billion was at the high end of Fitch's estimated range of \$4 billion to \$6 billion.

--VZW's strong competitive position, evidenced by industry-low churn rates on average, high margins, and the most developed LTE network in the U.S., support Fitch's expectations that Verizon will maintain cash flow stability and support the longer rating horizon for leverage metrics to return to levels consistent with the rating.

Verizon's liquidity is supported by its reported consolidated cash balances, which were \$10.6 billion at Dec. 31, 2014, and by its revolving credit facility (RCF). The \$8 billion RCF matures in July 2018. Fitch expects Verizon to maintain aggregate CP balances within a level fully backed by the RCF. The credit facility has no ratings triggers or other restrictive covenants, such as leverage or interest coverage tests.

On a consolidated basis, Verizon and its subsidiaries have maturities of approximately \$2.6 billion in 2015.

In 2015, Fitch expects consolidated capital spending to be in line with company guidance of \$17.5 billion to \$18 billion, slightly higher than the \$17.2 billion spent in 2014. Investment in the wireless network continues to be an area of emphasis due to the strong demand for 4G LTE capacity for rapidly growing data services.

RATING SENSITIVITIES

Fitch believes a positive rating action is unlikely in the foreseeable future, given the leverage incurred in the Vodafone transaction.

Conversely, Fitch may take negative rating action if operating performance causes delevering to take place at a materially slower than anticipated pace, either alone or in combination with material debt-financed acquisitions. Discretionary management moves that cause leverage to rise above 2.5x, such as another material acquisition or stock repurchases, could lead to a negative action in the absence of a strong commitment to delever.

Fitch has affirmed the following Verizon entities with a Stable Outlook:

Cellco Partnership
--IDR at 'A-';
--Senior unsecured debt (co-issued with Verizon Wireless Capital LLC) at 'A-'.

Verizon Wireless Capital LLC
--Senior unsecured debt (co-issued with Cellco Partnership) at 'A-'.

Alltel Corp.
GTE Corp.
Verizon Delaware
Verizon Maryland
Verizon New England
Verizon New Jersey
Verizon New York
Verizon Pennsylvania
Verizon Virginia
--IDR at 'A-';
--Senior unsecured at 'A-'.

Verizon Global Funding (merged into Verizon in 2006)
--Senior unsecured debt at 'A-'.

Fitch has placed the following issuers on Rating Watch Negative:

Verizon California
Verizon Florida
--IDR 'A-';
--Senior unsecured debt 'A-'.

GTE Southwest
--IDR 'A-';
--First mortgage bonds 'A-'.