FIXED INCOME INVESTMENTS

-PROJECT-
ALI YOUSUF - 14391
SYED AARIJ KHALID - 12724
 About Verizon Communication

 Verizon Communications Inc. was founded in 1983 and is headquartered in New

York City, New York. Verizon Communications is a holding company that, acting
through its subsidiaries, is one of the world’s leading providers of
communications, information and entertainment products and services to
consumers, businesses and governmental agencies. With a presence around the
world, it offers voice, data and video services and solutions on network that are
designed to meet customers’ demand for mobility, reliable network connectivity,
security and control. In November 2018, we announced a strategic reorganization
of our business.
Issuance

 $1,000,000,000 aggregate principal amount of 2.500% bonds due May 16, 2030

 $300,000,000 aggregate principal amount of 3.625% bonds due May 16, 2050
 Interest Payment Dates for both bonds May 16 and November 16 of each year, beginning
on November 16, 2020
 The notes will be issued in fully-registered, book-entry form in minimum denominations of $2,000
and integral multiples of $1,000 in excess thereof. The notes will be held in global form by CDS, as
depositary, and will be registered in the name of CDS & Co., as nominee of CDS.
 The Governing law is The State of New York, United States of America while The Trustee is the
U.S. Bank National Association
Credit Rating
Credit Rating (-cont.)

 Fitch
Investment-Grade A- (Long-Term)
Investment-Grade F1 (Short-Term
LTR A- Constant for Verizon for more than a decade now while STR came up to F1 from F2 in mid year 2019
 S&P
Investment-Grade BBB+ (Long-Term)
Investment-Grade A-2 (Short-Term)
 Moody’s
Investment-Grade BAA1 (Long-Term)
Business Segments & Fundamental Drivers

Considered the best service in the United States with over 70% of the
population covered.
• Significant investment and expansion including acquisitions such as MCI Inc., Vodafone, and
Alltel Corp., have helped Verizon become the leading wireless provider in the United States

Fundamental Drivers :
• the race against competition to deliver a reliable 5G network
• Verizon 2.0 operating model introduction
• Verizon has invested a tremendous amount of capital and holds a large amount of debt :
helped deliver the scale required to realize strong returns on wireless products and services
 Competitive Strategy and Market Factors
Verizon Communications has developed a sustained competitive advantage in the
wireless market
• By leveraging its high fixed cost structure and significant scale characteristics to provide a profitable
network coverage product to consumers.

Well positioned to maintain the highest margins in the wireless business as the
competition shrinks
• Verizon currently owns about 40% of the postpaid phone market, 10% above the nearest competitor in
AT&T

Possible merger : With three large scale wireless providers, prices could hold to help
firms maintain current profit margins, as each firm would control the sufficient
market share to achieve healthy returns.
 Strengths
Market Dominance
Global Operations:
Strong Financial Position
Highly Innovative:
Valuable Brand
Threats Effective Marketing Strategy Weaknesses
Strategic Acquisitions Overdependence on US
Verizon’s Threats Market
Intense Competition Negative Publicity
Hacking and Data Extra Data Charges
Leaks SWOT Breach of Trust
ANALYSIS Lack of Diversification
Looming Recession

Opportunities
Global Expansion
Diversify Portfolio
RISKS (Industry & Company-specific)

Industry Company-
Risks specific
Internal: operational
performance on
Industry risks include macro- controlling cost and, most
economic factors such as a importantly, the shift to a
possible recession, interest rates 5G network.
fluctuations, and trade wars with
China. consolidation, new
entrants, and
technology
advancements.
Financials and Valuation
Price Target for Investment Thesis

Conclusion:
SELL Verizon Communications Inc.

Target Price: $ 56.23

Current Price: $ 58.14
= represents limited upside for future investor returns
Options and Covenant

 An option to buy or sell (depending on whether it is a call or a

put) a bond at a certain price on or before the expiry date.

 Covenants are restrictive clauses in a bond contract that limit

the issuer from taking actions that may weaken its ability to
repay the bonds.
Redemption Option

 The option to redeem each series of notes on not less than 10 nor more than 60 days’ notice, in
whole or in part,
 (i) at any time prior to February 16, 2030 (three months prior to the maturity date of the notes due
2030) (the “notes due 2030 par call date”) with respect to the notes due 2030 and November 16,
2049 (six months prior to the maturity date of the notes due 2050) (the “notes due 2050 par call
date”) with respect to the notes due 2050, at a redemption price equal to the greater of:
 (a) 100% of the principal amount of the notes being redeemed, or
 (b) the Canada Yield Price; and
 (ii) at any time on or after the notes due 2030 par call date and the notes due 2050 par call date
with respect to the notes due 2030 and the notes due 2050, respectively, at a redemption price equal
to 100% of the principal amount of the notes being redeemed
 Company Covenants

 Verizon’s credit agreements contain covenants that are typical for large, investment grade companies.
 These covenants include requirements to pay interest and principal in a timely fashion, pay taxes, maintain
insurance with responsible and reputable insurance companies, preserve our corporate existence, keep
appropriate books and records of financial transactions, maintain our properties, provide financial and other
reports to our lenders, limit pledging and disposition of assets and mergers and consolidations, and other similar
covenants.
 Additionally, our term loan credit agreement requires us to maintain a leverage ratio not in excess of 3.5 : 1 ,
until our credit ratings are equal to or higher than A3 and A-
 We and our consolidated subsidiaries are in compliance with all of our restrictive covenants in our debt
agreements
 Moody's, one of the major credit rating agencies in the United States, rates a bond's covenant quality on a scale
of 1 to 5, with five being the worst. This means that a bond with a covenant rating of five is an indication that
covenants are being violated consistently.
Underwriter

 The term ‘underwriting’ refers to a commitment to subscribe for or

purchase securities that are not able to be sold to investors or to be
paid for by investors in a securities offering. By making such a
commitment, an underwriter assumes the risk from the issuer that the
securities being offered will not be taken up by investors. The
underwriter, therefore, effectively guarantees the issuer, subject to
certain conditions, the number of securities that will be sold and the
amount of proceeds the issuer will receive.
Underwriters of the Bond
 Role of the Underwriter

 The underwriters were given the role of severally underwriting the notes being offered. They were also expected to
deliver the notes in fully-registered, book-entry form on or about May 15, 2020 through the facilities of CDS Clearing
and Depository Services Inc. for the accounts of its participants.
 While selling the securities it is mandatory for the underwriters to give a purchase confirmation notice to the customers.
 The underwriters proposed to offer the notes directly to the public at the public offering prices set forth on the cover
page of this prospectus supplement. After the initial offering of the notes to the public, the underwriters may change the
public offering prices and other selling terms.
 The underwriters could also impose a penalty bid which permits the underwriters to reclaim a selling concession from a
syndicate member when the underwriters repurchase notes originally sold by that syndicate member.
 As per the purchase agreement the underwriters were obliged to purchase the bonds included in this offering are subject
to approval of legal matters by counsel and to other conditions.
 Any discounts or commission that Verizon pays them and any profit that they receive from the resale of the securities by
them is treated as underwriting discounts and commissions under the Securities Act.
 Capital structure of the Company

Market Value of Equity

Market Value of Debt
% of Equity = Market Value of Equity + % of Debt = Market Value of Equity + Market
Market Value of Debt Value of Debt

% Equity = 67,842/ (67,842 + 15,0547) = % Debt = 15,0547 / ( 15,0547 + 67,842 ) =

0.30% 0.70%

Not all companies can go for Debt

Debt Financing preferred over Equity Financing :
financing :
- tax benefits
- low Credit Rating, Cash Flow
- no ownership stake or dilution to the owners' equity position
Difficulties, and High Interest
- Debt can be a less expensive source of growth capital and can be
Rates/Paying Back Debt problems
beneficial for recurring revenue businesses
 Reasons for issuing debt instead of Equity

 Debt ratio: Total Debt/Total assets: 0.475

= as a rule of thumb, a debt-ratio more than 1 indicates that a considerable portion of debt is funded by assets.
Verizon’s Debt Ratio shows that an appropriate amount of portion of debt is funded by assets and is also very close to
the Industry Average Debt Ratio hence can go for Debt Financing.
 Capitalization ratio: LT DEBT/ (LT DEBT+EQUITY): 0.675
= the capitalization ratio reflects the extent to which a company is operating on its equity. The companies with high
capitalization ratio are considered to be risky because they are at a risk of insolvency if they fail to repay their debt on
time. Verizon has a moderate Capitalization Ratio and therefore can keep issuing debt without raising the risk of
insolvency.
 Interest coverage ratio: EBIT / Interest Payments= (27,667M/4,166M): 6.64
= A High-interest coverage ratio means there are high amounts of profit available to meet the interest expense on the
debt. Verizon has an exceptionally high Interest coverage ratio and represents that it can easily meet the interest
expense on debts and hence go for Debt Financing. (In comparison, AT%T has a Ratio of only 0.64 while the Industry
average is 2.65)
Impact of the Debt-issuance on Ratio Analysis
 Ratio Analysis

Debt to equity ratio: total debt Debt to assets ratio: total debt Interest coverage ratio: EBIT divided
divided by total shareholders’ divided by total assets. by interest payments
equity : The lower, the better The lower the better. The higher the better.
 IMPACT OF DEBT- ISSUANCE

 Impact on Verizon’s debt-to-asset ratio: Issuing debt will cause an Increase in the debt-to-asset ratio
which will indicate that the company is moving toward not having enough assets to cover its debt because
of increase in interest payments.
 Impact on Verizon’s Debt-to-Equity Ratio: An increase in the amount of debt would result in a
degradation of this Ratio, regardless of how the debt is used, hence causing an increase in the Ratio’s value
which will now indicate a higher risk to investors than before since the risk involved for every $1 of equity
financing has increased.
 Impact on Verizon’s Interest coverage ratio: Due to Debt Financing, the Interest Expense will increase
which will lower the value of the Ratio since it is inversely related. This would mean lower amount of
profit available to meet the interest expense on the debt as compared to before.