Subject: [NEXTEL-1] U.S. Cellular, Verizon May Sell Debt as Rates Tumble

From: Marcel <[email-masked]>
Date: Fri, 10 Jan 2003 14:43:54 -0500

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01/10 10:20
U.S. Cellular, Verizon May Sell Debt as Rates Tumble (Update2)
By Don Stancavish

Chicago, Jan. 10 (Bloomberg) -- U.S. Cellular Corp. sold
bonds two months ago. Since then, Chief Financial Officer Kenneth
Meyers has watched financing costs fall, tempting him to go back
for more.

``In the 15 years I've been in the business, I've never seen
rates this low,'' Meyers said.

Meyers, who oversees the mobile-telephone carrier's
financing, said he may join companies taking advantage of a rally
in corporate bonds and a resurgence in demand for new company
debt. More than two-dozen companies have sold $27.8 billion of
bonds this week, the biggest weekly total in 15 months.

U.S. telecommunications companies, which comprise more than 9
percent of the Merrill Lynch & Co. U.S. Corporate Master Trust
index of 3,490 bonds, have yet to participate. U.S. Cellular,
Verizon Communications Inc. and BellSouth Corp. are among those
that soon might, analysts said.

Six months after WorldCom Inc. filed for the largest U.S.
bankruptcy and sent bonds of other telecommunications companies
plunging, investors have warmed to phone company debt. Securities
of Verizon, BellSouth and others have risen and some investors
said they would buy if those companies sold bonds now.

``The telecom sales will be embraced enthusiastically by the
debt market,'' said Daniela Spassova, director of research at
Principal Capital Income Investors Inc., which has about $40
billion under management, including Sprint Corp., Verizon and SBC
Communications Inc. bonds. Verizon may sell this month, she said.

Verizon

New York-based Verizon may step in to help pay for some of
its $4 billion of bonds maturing this year. Like other telephone
companies, the largest local-phone provider is trying to trim
debt. It will still need to sell bonds to replace and pay for
those that come due, analysts said.

``Certainly we'll take advantage of low-cost borrowing if we
have a need,'' said Verizon Treasurer William Heitmann. ``I have
no intention to issue new debt just because interest rates are
low.''

When Heitmann decided to sell $1 billion of bonds in August,
WorldCom had just filed for bankruptcy and telecommunications
bonds were tumbling on concern that problems at the second-largest
U.S. long-distance phone company would extend to other carriers.
Verizon sold the 7 3/8 percent bonds maturing in 2012 at face
value of $1,000 and a risk premium, or spread, of 325 basis points
more than comparable U.S. Treasuries.

Those bonds are now trading at $1,148.72, with a spread of
124 basis points and a yield of 5.4 percent, according to Trace,
the bond price reporting service of the National Association of
Securities Dealers. At that coupon, a similar bond sale would cost
Verizon almost $2 million less in interest over 10 years.

Replacing Debt

Verizon's debt is rated A+ by Standard & Poor's, the fifth-
highest of 10 investment-grade ratings, and A2 by Moody's
Investors Service, a level lower.

The average risk premium on investment-grade corporate debt,
or the extra yield companies offer above Treasuries, has narrowed
10 basis points since the start of the year to 1.74 percentage
points, its lowest in seven months. With Treasuries near 40-year
lows, and concern that a war with Iraq might curb demand for
corporate debt, companies are taking the chance to sell.

European telecommunications providers are already lining up
sales. Olivetti SpA, which controls Telecom Italia SpA, plans to
sell at least 1 billion euros ($1.1 billion) of bonds, a banker
involved in the sale said. France Telecom SA raised 2.5 billion
euros in a sale last month and is planning a 3 billion euro sale
for next week, L'Agefi newspaper reported.

Refinancing

Companies such as Verizon and SBC, the biggest U.S. local-
telephone companies, will need to sell bonds to replace maturing
debt or to pay back securities with higher interest rates,
investors said.

``Telecoms all have refinancing issues in front of them,''
said Mark Simenstad, head of fixed-income research at Thrivent
Financial for Lutherans, which owns bonds of long-distance phone
carrier Sprint and mobile-phone provider Nextel Communications
Inc. Simenstad said he's heard ``rumblings on the street'' of
telecommunications sales.

Sprint and Nextel could be among them, he said. Cingular
Wireless LLC, which has sold bonds just twice, and Verizon
Wireless Inc. may also sell, analysts said.

``There would be demand right now for telecom paper, so I see
a lot of those companies coming to the market,'' Cory Jackson, a
US Bancorp Piper Jaffray fixed-income analyst said. He listed
Verizon and BellSouth as likely to sell.

BellSouth

BellSouth, with $20.1 billion in debt and $1.5 billion
maturing this year, plans to pay back lenders with the cash it
generates from operations, spokesman Jeff Battcher said. ``I can't
say we won't do any refinancing in 2003, but that is not our
goal,'' he said.

BellSouth's 6 percent bond maturing in 2011 has risen to
$1,081.88 per $1,000 face value. That reduced the spread to 0.67
percentage points from 1.65 percentage points six months ago. The
bonds now yield 4.84 percent.

The $132 million of bonds U.S. Cellular sold in November have
also risen. The Chicago-based company's debt yields about 8.35
percent in the secondary bond market, down from 8.52 percent
Monday and 8.75 percent at last year's sale, according to
Bloomberg data. If U.S. Cellular had waited until now to sell
those bonds, its interest cost would have been trimmed by $1.6
million over their 30-year life.

The debt is rated A3 by Moody's and A- by S&P. Both ratings
companies have a negative outlook on the borrowings.

U.S. Cellular is considering acquisitions, Myers said.
Proceeds of a bond sale might be used to pay for any purchases, he
said. The mobile-phone company may also pay back a bank loan.

``Clearly with these kind of rates out there, it helps any
analysis around an acquisition,'' Myers said. ``Just because rates
are low doesn't mean we're going to rush out and do a deal, but it
certainly would help us do the right deal.''

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