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Verizon Communications Inc. (VZ - Analyst Report) is reportedly seeking loan to finance its mega buy of 45% stake in Verizon Wireless, which currently remains unacquired from Vodafone Group PLC (VOD - Analyst Report). The loan amount will consist of $14 billion divided into a $2 billon, 364-day revolving credit facility and $12 billion for three and five-year term loans.

Further, the $2 billon revolving facility will be priced at 10bp on undrawn amounts, while the drawing price would remain LIB+125. In addition, the total $12 billion term loan will be divided equally into $6 billion priced at LIB+137.5 for the three-year term loan and LIB+150 for the five-year term loan.

These loan facilities are part of Verizon’s financing package for its  $130 billion worth acquisition plan. The company is also looking forward to a $49 billion bridge loan priced at LIB +150 that would be further refinanced with the company’s issues in the bond market.

According to news reports, Verizon is also coming up with plans like issuing bonds and may raise upto $50 billion, representing the largest corporate bond sale ever for the company. Verizon is expected to offer this loan in several tranches with maturity ranging from five years to as many as 100 years.

In addition, the issues are expected to be in several currencies predominantly in U.S. dollar, which can be up to $20 billion, which is even higher than the $17 billion debt raised by Apple Inc. (AAPL - Analyst Report) in April this year that represented one of the biggest debt sale in the U.S. corporate history. 

Although these debts can enable the company to undertake its mammoth acquisition plan smoothly, we believe the additional financial burden will remain deterrent to investors’ interest. As of Jun 30, the company already has long-term debt (including current portion) of $49.8 billion, representing a debt-to-capitalization ratio of 36.3%.

Further, the company’s balance sheet position reflects cash and cash equivalents of only $5.5 billion, which makes its imperative for it to rely on debt funds to carry out the transaction. In such an event, we believe this would directly reflect on investor returns, resulting in lower dividend payout from the current dividend.

Verizon, which operates with other telecom players like AT&T, Inc. (T - Analyst Report) currently has a Zacks Rank #3 (Hold).

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