4.

Debt

 

Changes to debt during the three months ended March 31, 2017 are as follows:

 

(dollars in millions)		Debt Maturing within One Year				Long-term Debt				Total
Balance at January 1, 2017		$	2,645			$	105,433			$	108,078
Proceeds from long-term borrowings			65				12,989				13,054
Proceeds from asset-backed long-term borrowings			–				1,283				1,283
Repayments of long-term borrowings and capital leases obligations			(201	)			(5,391	)			(5,592	)
Decrease in short-term obligations, excluding current maturities			(52	)			–				(52	)
Reclassifications of long-term debt			1,165				(1,165	)			–
Other			85				(310	)			(225	)
Balance at March 31, 2017		$	3,707			$	112,839			$	116,546

January Exchange Offers and Cash Offers

On January 25, 2017, we commenced eighteen separate private offers to exchange (the January Exchange Offers) specified series of outstanding Notes issued by Verizon Communications (the Old Notes) for new Notes to be issued by Verizon Communications and, for certain series, cash. In connection with the January Exchange Offers, which expired on January 31, 2017 and settled on February 3, 2017, we issued $3.2 billion aggregate principal amount of Verizon Communications 2.946% Notes due 2022 (the 2022 New Notes), $1.7 billion aggregate principal amount of Verizon Communications 4.812% Notes due 2039 (the 2039 New Notes) and $4.1 billion aggregate principal amount of Verizon Communications 5.012% Notes due 2049 (the 2049 New Notes) plus applicable cash of $0.6 billion (not including accrued and unpaid interest on the Old Notes) in exchange for $8.3 billion aggregate principal amount of tendered Old Notes.

We concurrently commenced eighteen separate offers to purchase for cash (the January Cash Offers) the Old Notes. In connection with the January Cash Offers, which expired on January 31, 2017 and settled on February 3, 2017, we repurchased $0.5 billion aggregate principal amount of Old Notes for $0.5 billion, exclusive of accrued interest. On February 10, 2017, we purchased for $0.1 billion, exclusive of accrued interest, an additional $0.1 billion of Old Notes (the “subsequent cash purchases”) from certain holders whose tenders of Old Notes in the January Cash Offers had been rejected.

 

The table below lists the series of Old Notes included in the January Exchange Offers for the 2022 New Notes and the January Cash Offers, referred to as Group 1:

 

(dollars in millions)		Interest Rate				Maturity				Principal Amount Outstanding				Principal Amount Accepted for Exchange				Principal Amount Accepted for Cash (1)
Verizon Communications Inc.			5.500	%			2018			$	737			$	83			$	8
			6.100	%			2018				753				77				9
			3.650	%			2018				2,698				508				97
			2.550	%			2019				500				154				35
			1.375	%			2019				1,000				376				38
			2.625	%			2020				3,304				1,925				55
														$	3,123			$	242

 

(1)	Includes amounts acquired pursuant to the subsequent cash purchases.

The table below lists the series of Old Notes included in the January Exchange Offers for the 2039 New Notes and the January Cash Offers, referred to as Group 2:

 

(dollars in millions)		Interest Rate				Maturity				Principal Amount Outstanding				Principal Amount Accepted for Exchange				Principal Amount Accepted for Cash (1)
Verizon Communications Inc.			5.150	%			2023			$	8,517			$	715			$	217
			7.750	%			2030				930				184				4
			7.750	%			2032				218				2				–
			6.400	%			2033				1,729				640				6
														$	1,541			$	227

 

(1)	Includes amounts acquired pursuant to the subsequent cash purchases.

The table below lists the series of Old Notes included in the January Exchange Offers for the 2049 New Notes and the January Cash Offers, referred to as Group 3:

 

(dollars in millions)		Interest Rate				Maturity				Principal Amount Outstanding				Principal Amount Accepted for Exchange				Principal Amount Accepted for Cash (1)
Verizon Communications Inc.			5.850	%			2035			$	1,250			$	447			$	4
			6.250	%			2037				636				189				5
			6.400	%			2038				750				228				6
			6.900	%			2038				384				111				4
			8.950	%			2039				290				48				–
			7.350	%			2039				412				225				1
			6.000	%			2041				1,000				480				20
			6.550	%			2043				4,245				1,933				46
														$	3,661			$	86

 

(1)	Includes amounts acquired pursuant to the subsequent cash purchases.

Term Loan Credit Agreements

During January 2017, we entered into a term loan credit agreement with a syndicate of major financial institutions pursuant to which we could borrow up to $5.5 billion for (i) the acquisition of Yahoo and (ii) general corporate purposes. Borrowings under the term loan credit agreement would mature 18 months following the funding date, with a partial mandatory prepayment required within six months following the funding date. None of the $5.5 billion borrowing capacity was used during the three months ended March 31, 2017. In March 2017, the term loan credit agreement was terminated in accordance with its terms and as such, the related fees were recognized in Other income and (expense), net and were not significant.

In March 2017, we prepaid $1.7 billion of the outstanding $3.3 billion term loan that matures in July 2019. During April 2017, we repaid the remaining outstanding amount under the term loan agreement.

March Tender Offer

On March 13, 2017, we announced the commencement of a tender offer (the March Tender Offer) to purchase for cash any and all of the series of notes listed below. The Tender Offer expired on March 17, 2017 and most of which was settled on March 20, 2017. In addition to the purchase price, any accrued and unpaid interest on the purchased notes was paid to the date of purchase.

 

(dollars in millions, except for Purchase Price)		Interest Rate				Maturity				Principal Amount Outstanding				Purchase Price (1)				Principal Amount Purchased
Verizon Communications Inc.			8.950	%			2039			$	242			$	1,537.18			$	131
			7.750	%			2032				215				1,341.68				36
			6.550	%			2043				2,266				1,239.85				847
			6.400	%			2033				1,083				1,216.85				612
			7.350	%			2039				186				1,324.60				27
			6.900	%			2038				270				1,273.29				49
			7.750	%			2030				742				1,379.04				160
			6.400	%			2038				515				1,206.61				118
			6.250	%			2037				443				1,189.56				103
			5.850	%			2035				800				1,151.79				249
			6.000	%			2041				500				1,151.23				206
			6.100	%			2018				667				1,048.45				153
			5.500	%			2018				646				1,037.01				113
Verizon New York Inc.			7.375	%			2032				244				1,285.50				39
			6.500	%			2028				72				1,177.23				1
Verizon Pennsylvania LLC			8.750	%			2031				53				1,426.33				17
			8.350	%			2030				48				1,384.37				16
			6.000	%			2028				68				1,139.69				11
Verizon Delaware LLC			8.625	%			2031				10				1,416.70				8
Verizon Maryland LLC			8.300	%			2031				24				1,378.75				2
			8.000	%			2029				28				1,332.71				1
			5.125	%			2033				179				1,063.06				15
Verizon Virginia LLC			8.375	%			2029				19				1,367.57				9
			7.875	%			2022				57				1,206.35				–
Verizon New England Inc.			7.875	%			2029				173				1,322.35				26
Verizon New Jersey Inc.			7.850	%			2029				87				1,319.96				8
			8.000	%			2022				146				1,227.16				25
GTE LLC			8.750	%			2021				207				1,240.28				14
			6.940	%			2028				413				1,270.73				85
			6.840	%			2018				332				1,056.27				38
																		$	3,119

 

(1)	Per $1,000 principal amount of notes tendered.

 

Debt Issuances and Redemptions

During February 2017, we redeemed $0.2 billion of the $0.6 billion 6.94% GTE LLC Notes due 2028 at 124.8% of the principal amount of the notes redeemed (see “Early Debt Redemptions”).

During February 2017, we issued approximately $1.5 billion aggregate principal amount of 4.95% Notes due 2047. The issuance of these notes resulted in cash proceeds of approximately $1.5 billion, net of discounts and issuance costs and after reimbursement of certain expenses. The net proceeds were used for general corporate purposes.

During March 2017, we issued $11.0 billion aggregate principal amount of fixed and floating rate notes. The issuance of these notes resulted in cash proceeds of approximately $10.9 billion, net of discounts and issuance costs and after reimbursement of certain expenses. The issuance consisted of the following series of notes: $1.4 billion aggregate principal amount of Verizon Communications Floating Rate Notes due 2022, $1.85 billion aggregate principal amount of Verizon Communications 3.125% Notes due 2022, $3.25 billion aggregate principal amount of Verizon Communications 4.125% Notes due 2027, $3.0 billion aggregate principal amount of Verizon Communications 5.250% Notes due 2037, and $1.5 billion aggregate principal amount of Verizon Communications 5.500% Notes due 2047. The floating rate notes bear interest at a rate equal to the three-month LIBOR plus 1.000% which rate will be reset quarterly. The net proceeds were primarily used for the tender offer and general corporate purposes, including discretionary contributions to our qualified pension plans. We intend to use the remaining net proceeds for the financing, in whole or in part, of our pending acquisition of Yahoo.

On April 24, 2017, we redeemed in whole $0.5 billion aggregate principal amount of Verizon Communications 6.100% Notes due 2018 at 104.5% of the principal amount of such notes and $0.5 billion aggregate principal amount of Verizon Communications 5.50% Notes due 2018 at 103.3% of the principal amount of such notes, plus accrued and unpaid interest to the date of redemption.

Asset-Backed Debt

As of March 31, 2017, the carrying value of our asset-backed debt was $6.3 billion. Our asset-backed debt includes notes (the Asset-Backed Notes) issued to third-party investors (Investors) and loans (ABS Financing Facility) received from banks and their conduit facilities (collectively, the Banks). Our consolidated asset-backed securitization bankruptcy remote legal entities (each, an ABS Entity or collectively, the ABS Entities) issue the debt or are otherwise party to the transaction documentation in connection with our asset-backed debt transactions. Under the terms of our asset-backed debt, we transfer device payment plan agreement receivables from Cellco Partnership and certain other affiliates of Verizon (collectively, the Originators) to one of the ABS Entities, which in turn transfers such receivables to another ABS Entity that issues the debt. Verizon entities retain the equity interests in the ABS Entities, which represent the rights to all funds not needed to make required payments on the asset-backed debt and other related payments and expenses.

Our asset-backed debt is secured by the transferred device payment plan agreement receivables and future collections on such receivables. The device payment plan agreement receivables transferred to the ABS Entities and related assets, consisting primarily of restricted cash, will only be available for payment of asset-backed debt and expenses related thereto, payments to the Originators in respect of additional transfers of device payment plan agreement receivables, and other obligations arising from our asset-backed debt transactions, and will not be available to pay other obligations or claims of Verizon’s creditors until the associated asset-backed debt and other obligations are satisfied. The Investors or Banks, as applicable, which hold our asset-backed debt have legal recourse to the assets securing the debt, but do not have any recourse to Verizon with respect to the payment of principal and interest on the debt. Under a parent support agreement, Verizon has agreed to guarantee certain of the payment obligations of Cellco Partnership and the Originators to the ABS Entities.

Cash collections on the device payment plan agreement receivables are required at certain specified times to be placed into segregated accounts. Deposits to the segregated accounts are considered restricted cash and are included in Prepaid expenses and other and Other assets on our condensed consolidated balance sheets.

Proceeds from our asset-backed debt transactions, deposits to the segregated accounts and payments to the Originators in respect of additional transfers of device payment plan agreement receivables are reflected in Cash flows from financing activities in our condensed consolidated statements of cash flows. Repayments of our asset-backed debt and related interest payments made from the segregated accounts are non-cash activities and therefore not reflected within Cash flows from financing activities in our condensed consolidated statements of cash flows. The asset-backed debt issued and the assets securing this debt are included on our condensed consolidated balance sheets.

 

Asset-Backed Notes

In March 2017, we issued approximately $1.3 billion aggregate principal amount of senior and junior Asset-Backed Notes through an ABS Entity. The Class A senior asset-backed notes have an expected weighted-average life of about 2.6 years and bear interest at 2.06% per annum, the Class B junior asset-backed notes have an expected weighted-average life of about 3.38 years and bear interest at 2.45% per annum and the Class C junior asset-backed notes have an expected weighted-average life of about 3.64 years and bear interest at 2.65% per annum.

Under the terms of the asset-backed notes, there is a two-year revolving period during which we may transfer additional receivables to the ABS Entity.

ABS Financing Facility

As of March 31, 2017, outstanding borrowings under the ABS Financing Facility were approximately $2.5 billion. We had the option to request an additional $0.5 billion of committed funding, which was not exercised and expired on March 31, 2017. There is a two year revolving period, which may be extended, during which we may transfer additional receivables to the ABS Entity. Subject to certain conditions, we may also remove receivables from the ABS Entity.

Although the ABS Financing Facility is fully drawn as of March 31, 2017, we have the right to prepay all or a portion thereof at any time without penalty, but in certain cases, with breakage costs. If we choose to prepay, the amount prepaid shall be available for further drawdowns until September 2018, except in certain circumstances.

Variable Interest Entities (VIEs)

The ABS Entities meet the definition of a VIE for which we have determined that we are the primary beneficiary as we have both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the entity. Therefore, the assets, liabilities and activities of the ABS Entities are consolidated in our financial results and are included in amounts presented on the face of our condensed consolidated balance sheets.

The assets and liabilities related to our asset-backed debt arrangements included on our condensed consolidated balance sheets were as follows:

 

(dollars in millions)		At March 31, 2017				At December 31, 2016
Assets
Account receivable, net		$	4,628			$	3,383
Prepaid expenses and other			298				236
Other assets			2,574				2,383
Liabilities
Accounts payable and accrued liabilities			3				4
Long-term debt			6,272				4,988

See Note 5 for additional information on device payment plan agreement receivables used to secure asset-backed debt.

Credit Facilities

As of March 31, 2017, the unused borrowing capacity under our $9.0 billion credit facility was approximately $8.9 billion. The credit facility does not require us to comply with financial covenants or maintain specified credit ratings, and it permits us to borrow even if our business has incurred a material adverse change. We use the credit facility for the issuance of letters of credit and for general corporate purposes.

As of March 31, 2017, the equipment credit facility insured by Eksportkreditnamnden Stockholm, Sweden (EKN), the Swedish export credit agency, was fully drawn. We had the ability to borrow up to $1.0 billion to finance network equipment-related purchases. The facility had borrowings available through June 2017, contingent upon the amount of eligible equipment-related purchases made by Verizon.

 

Additional Financing Activities (Non-Cash Transaction)

During the three months ended March 31, 2017, we financed, primarily through vendor financing arrangements, the purchase of approximately $0.1 billion of long-lived assets consisting primarily of network equipment. At March 31, 2017, $1.2 billion relating to vendor financing arrangements, including those entered into in prior years and liabilities assumed through acquisitions, remained outstanding. These purchases are non-cash financing activities and therefore not reflected within Capital expenditures on our condensed consolidated statements of cash flows.

Early Debt Redemptions

During the first quarter of 2017, we recorded a net pre-tax loss on early debt redemption of $0.8 billion primarily in connection with the January Cash Offers and the March Tender Offer.

We recognize early debt redemption costs in Other income and (expense), net on our condensed consolidated statements of income.

Guarantees

We guarantee the debentures of our operating telephone company subsidiaries. As of March 31, 2017, $1.0 billion aggregate principal amount of these obligations remained outstanding. Each guarantee will remain in place for the life of the obligation unless terminated pursuant to its terms, including the operating telephone company no longer being a wholly-owned subsidiary of Verizon.

We also guarantee the debt obligations of GTE LLC as successor in interest to GTE Corporation that were issued and outstanding prior to July 1, 2003. As of March 31, 2017, $0.8 billion aggregate principal amount of these obligations remain outstanding.