Notes to Consolidated Financial Statements

NOTE 10

DEBT

Debt Maturing Within One Year

Debt maturing within one year is as follows:

(dollars in millions)

At December 31,

2008

 

2007

 

Long-term debt maturing within one year

$

3,506

 

$

2,564

 

Commercial paper

 

1,487

 

 

390

 

Total debt maturing within one year

$

4,993

 

$

2,954

 

The weighted average interest rate for our commercial paper at December 31, 2008 and December 31, 2007 was 2.9% and 4.6%, respectively.

Capital expenditures (primarily acquisition and construction of network assets) are partially financed pending long-term financing through bank loans and the issuance of commercial paper payable within 12 months.

At December 31, 2008, we had approximately $5,600 million of unused bank lines of credit which consisted of a three-year committed facility that expires in September 2009. In addition, at December 31, 2008, we had entered into a vendor provided credit facility that provided $150 million of financing capacity. Certain of these lines of credit contain requirements for the payment of commitment fees.

Long-Term Debt

Outstanding long-term debt obligations are as follows:

(dollars in millions)

At December 31,

Interest Rates %

Maturities

2008

 

2007

 

Notes payable

4.35 – 5.50

2009 – 2018

$

7,878

 

$

5,872

 

 

5.55 – 6.90

2012 – 2038

 

8,741

 

 

3,550

 

 

7.25 – 8.95

2009 – 2039

 

8,822

 

 

5,501

 

 

Verizon Wireless — notes payable and other

7.38 – 8.88

2011 – 2018

 

5,938

 

 

 

 

LIBOR plus 1.00%

2009 – 2011

 

4,440

 

 

 

 

Telephone subsidiaries — debentures

4.63 – 7.00

2009 – 2033

 

9,654

 

 

10,580

 

 

7.15 – 7.88

2012 – 2032

 

1,449

 

 

1,449

 

 

8.00 – 8.75

2010 – 2031

 

1,080

 

 

1,080

 

 

Other subsidiaries — debentures and other

6.84 – 8.75

2009 – 2028

 

2,200

 

 

2,450

 

 

Employee stock ownership plan loans —

NYNEX debentures

9.55

2010

 

47

 

 

70

 

 

Capital lease obligations

(average rate 6.2% and 6.8%)

 

 

 

390

 

 

312

 

 

Unamortized discount, net of premium

 

 

 

(219

)

 

(97

)

Total long-term debt, including current maturities

 

 

 

50,465

 

 

30,767

 

Less: debt maturing within one year

 

 

 

(3,506

)

 

(2,564

)

Total long-term debt

 

 

$

46,959

 

$

28,203

 

Notes Payable

In November 2008, Verizon issued $2,000 million of 8.75% notes due 2018 and $1,250 million of 8.95% notes due 2039, which resulted in cash proceeds of $3,189 million net of discount and issuance costs. In April 2008, Verizon issued $1,250 million of 5.25% notes due 2013, $1,500 million of 6.10% notes due 2018, and $1,250 million of 6.90% notes due 2038, resulting in cash proceeds of $3,950 million, net of discounts and issuance costs. In February 2008, Verizon issued $750 million of 4.35% notes due 2013, $1,500 million of 5.50% notes due 2018, and $1,750 million of 6.40% notes due 2038, resulting in cash proceeds of $3,953 million, net of discounts and issuance costs. In January 2008, Verizon utilized a $239 million fixed rate vendor financing facility due 2010. During the first quarter of 2008, $1,000 million of Verizon Communications Inc. 4.0% notes matured and were repaid.

In April 2007, Verizon issued $750 million of 5.50% notes due 2017, $750 million of 6.25% notes due 2037, and $500 million of floating rate notes due 2009 resulting in cash proceeds of $1,977 million, net of discounts and issuance costs. In March 2007, Verizon issued $1,000 million of 13-month floating rate exchangeable notes with an original maturity of 2008. These notes were exchangeable periodically at the option of the note holder into similar notes until 2017. The exchangeable notes were not exchanged and are now due April 2009. In February 2007, Verizon utilized a $425 million floating rate vendor financing facility due 2013.

In January 2007, we redeemed $1,580 million principal of the remaining outstanding floating rate notes due August 15, 2007, at a redemption price equal to 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest through the date of redemption. The total payment on the date of redemption was approximately $1,593 million. Approximately $1,600 million of other borrowings were redeemed during 2007.

We recorded pretax charges of $26 million ($16 million after-tax) during the first quarter of 2006 resulting from the extinguishment of $5,665 million aggregate principal amount of long-term debt assumed in connection with the MCI merger.

Verizon Wireless – Notes Payable and Other

Unless indicated, the following notes were co-issued or co-borrowed by Verizon Wireless and Verizon Wireless Capital LLC. Verizon Wireless Capital LLC is a wholly owned subsidiary of Verizon Wireless. It is a limited liability company formed under the laws of Delaware on December 7, 2001 as a special purpose finance subsidiary to facilitate the offering of debt securities of Verizon Wireless by acting as co-issuer. Other than the financing activities as a co-issuer of Verizon Wireless indebtedness, Verizon Wireless Capital LLC has no material assets, operations or revenues. Verizon Wireless is jointly and severally liable with Verizon Wireless Capital LLC for these notes.

On December 18, 2008, Verizon Wireless and Verizon Wireless Capital LLC, co-issued €650 million of 7.625% notes due 2011, €500 million of 8.750% notes due 2015 and £600 million of 8.875% notes due 2018. Concurrent with these offerings, we entered into cross currency swaps to fix our future interest and principal payments in U.S. dollars as well as to exchange the proceeds from British Pound Sterling and Euros into U.S. dollars (see Note 11). The cash proceeds of $2,410 million, net of discounts and issuance costs were used in connection with the Alltel acquisition on January 9, 2009 (see Note 2).

On November 21, 2008, Verizon Wireless and Verizon Wireless Capital LLC co-issued a private placement of $1,250 million of 7.375% notes due 2013 and $2,250 million of 8.500% notes due 2018 resulting in cash proceeds of $3,451 million net of discounts and issuance costs. The net proceeds from the sale of these notes were used in connection with the Alltel acquisition on January 9, 2009 (see Note 2). The co-issuers are required to file a registration statement with respect to an offer to exchange these notes for a new issue of notes registered under the Securities Act of 1933 and use their reasonable best efforts to cause the registration statement to be declared effective within 330 days after the closing of the offering of these notes.

On September 30, 2008, Verizon Wireless and Verizon Wireless Capital LLC entered into a $4,440 million Three-Year Term Loan Facility Agreement (Three-Year Term Facility) with Citibank, N.A., as Administrative Agent, with a maturity date of September 30, 2011. Verizon Wireless borrowed $4,440 million under the Three-Year Term Facility in order to repay a portion of the 364-Day Credit Agreement as described below. Of the $4,440 million, $444 million must be repaid at the end of the first year, $1,998 million at the end of the second year, and $1,998 million upon final maturity. Interest on borrowings under the Three-Year Term Facility is calculated based on the LIBOR rate for the applicable period and a margin that is determined by reference to the long-term credit rating of Verizon Wireless issued by Standard & Poor's Rating Services and Moody's Investors Service (if Moody's subsequently determines to provide a credit rating for the Three-Year Term Facility). Borrowings under the Three-Year Term Facility currently bear interest at a variable rate based on LIBOR plus 100 basis points. The Three-Year Term Facility includes a requirement to maintain a certain leverage ratio.

On June 5, 2008, Verizon Wireless entered into a $7,550 million 364-Day Credit Agreement with Morgan Stanley Senior Funding Inc. as Administrative Agent. During 2008, Verizon Wireless utilized this facility primarily to purchase the Alltel debt obligations acquired in the second quarter and pay fees and expenses incurred in connection therewith, finance the acquisition of Rural Cellular and repay the outstanding Rural Cellular debt and pay fees and expenses incurred in connection therewith. During 2008, the borrowings under the 364-Day Credit Agreement were repaid.

See Note 2 regarding the recent repayment of Alltel debt and related borrowings subsequent to December 31, 2008.

Telephone and Other Subsidiary Debt

During the fourth quarter of 2008, $200 million of Verizon Northwest 5.55% notes, $250 million 6.9% notes and $250 million 5.65% notes of Verizon North Inc. matured and were repaid. During the second quarter of 2008, $100 million of Verizon California Inc. 7.0% notes and $250 million of Verizon New York Inc. 6.0% notes matured and were repaid. Additionally, during first half of 2008, $250 million of GTE Corporation 6.46% notes and $125 million of Verizon South Inc. 6.0% notes matured and were repaid.

During the fourth quarter of 2007, Verizon New England Inc. redeemed previously guaranteed $480 million 7.0% debentures, Series B, issued by Verizon New England Inc. due 2042 at par plus accrued and unpaid interest to the redemption dates. During the third quarter of 2007, $150 million Verizon Pennsylvania Inc. 7.375% notes matured and were repaid. During the second quarter of 2007, $125 million Verizon New England Inc. 7.65% notes and the $225 million Verizon South Inc. 6.125% notes matured and were repaid. During the first quarter of 2007, $150 million GTE Southwest Inc. 6.23% notes and the $275 million Verizon California Inc. 7.65% notes matured and were repaid. In addition, we redeemed $500 million of GTE Corporation 7.9% debentures due February 1, 2027 and $300 million Verizon South Inc. 7.0% debentures, Series F, due 2041 at par plus accrued and unpaid interest to the redemption dates. During the first quarter of 2007, we recorded pretax charges of $28 million ($18 million after-tax) in connection with the early extinguishments of debt.

Guarantees

We guarantee the debt obligations of GTE Corporation (but not the debt of its subsidiary or affiliate companies) that were issued and outstanding prior to July 1, 2003. As of December 31, 2008, $2,200 million principal amount of these obligations remained outstanding. Verizon Communications Inc. and NYNEX Corporation are the joint and several co-obligors of the 20-Year 9.55% Debentures due 2010 previously issued by NYNEX on March 26, 1990. As of December 31, 2008, $47 million principal amount of this obligation remained outstanding. NYNEX and GTE no longer issue public debt or file SEC reports.

Debt Covenants

We and our consolidated subsidiaries are in compliance with all of our debt covenants.

Maturities of Long-Term Debt

Maturities of long-term debt outstanding at December 31, 2008 are as follows:

Years

(dollars in millions)

2009

 

$

3,506

2010

 

 

5,018

2011

 

 

5,647

2012

 

 

4,306

2013

 

 

5,638

Thereafter

 

 

26,350