Verizon bonds will reportedly be secured by EIP payments
Verizon Communications plans to offer bonds to investors that will be backed by smartphone contracts. The news comes from one of the banks that will be marketing the bonds for the carrier.
This will mark the first time that a U.S. wireless carrier will offer bonds backed by smartphone payments to the public. In the past, Verizon has secured bank loans backed by smartphone receivables. Sprint has created a separate entity to generate immediate cash from expected device payments.
Verizon is expected to raise almost $1.2 billion through the offering, with equipment installment plan payments providing the revenue stream to back the new bonds. When consumers buy a phone with an EIP plan, they typically pay for the device over time through a series of monthly payments. Verizon still offers two-year service contracts and subsidized smartphones to customers already on those plans, but not to new customers.
Verizon Communications currently has a market capitalization of roughly $224 billion and total debt of about $110 billion. The company took on debt to buy the part of the company that was previously owned by Vodafone, spending $130 billion on that transaction in 2014. Then in 2015, Verizon Communications bought AOL for $4.4 billion and this year it bought XO Communications for $1.8 billion.
The carrier also spent $10.4 billion in the AWS spectrum auction, and is expected to spend heavily in the upcoming forward auction for spectrum in the 600 MHz band. Verizon Communications is also considered a potential bidder for all or part of Yahoo, which has a current market capitalization of $34 billion.
Earlier this month, Verizon CFO Fran Shammo suggested to investors that Verizon would look at turning its EIP payments into an asset-backed security. He said this would be beneficial from a credit rating perspective because Verizon could borrow without adding to its unsecured debt.
Verizon is expected to conduct a “road show” with its bankers next month to market the new securities to investors. Bank of America Merrill Lynch, Barclays and MUFG are said to be the carrier’s lead bankers for this transaction.
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