S&P Reviews Verizon and MCI

NEW YORK -- Standard & Poor's Ratings Services today placed its long-term ratings of New York City-based Verizon Communications Inc. and affiliates on CreditWatch with negative implications following the company's announcement of its plan to acquire MCI Inc. In the event of a downgrade, Verizon's long-term corporate credit rating (currently at 'A+') would not fall lower than 'A'. Accordingly, the 'A-1' short-term rating on financing arms Verizon Global Funding Corp. and Verizon Network Funding Co. were affirmed. An aggregate of approximately $39 billion of Verizon debt is affected.

At the same time, Standard & Poor's placed its ratings of Ashburn, Va.-based MCI Corp., including the 'B+' corporate credit rating, on CreditWatch with positive implications. The action affects approximately $6 billion of MCI debt.

The acquisition proposal values MCI at about $9 billion. Under the terms of the transaction, MCI shareholders will receive about $5 billion of Verizon stock and just under $2 billion in cash. At closing, Verizon will assume about $4 billion of net MCI debt, which is elevated by the cash payment that will be made to MCI shareholders. The consideration is subject to adjustment if MCI's contingent bankruptcy and tax-related liabilities exceed $1.725 billion at closing. The acquisition requires approval by MCI shareholders and a number of regulatory bodies, and the transaction will take about a year to close.

"The negative CreditWatch listing for the Verizon ratings reflects the potential for weaker financial parameters at the company, as well as a possible weakening of Verizon's overall business risk position," explained Standard & Poor's Managing Director Richard Siderman. "The initial financial impact on Verizon will not be significant, given MCI's large cash position and the relative size of the companies. Accordingly, the CreditWatch placement incorporates concerns regarding prospects for material cash generation at MCI over the next few years."

Standard & Poor’s