Moody's cuts Verizon, ups MCI

Moody's Investors Service said it downgraded Verizon Communications Inc.'s long-term debt rating to A3 from A2 and its short-term debt rating to Prime-2 from Prime-1, reflecting the likely pressure on cash flows arising from the company's plan to upgrade its local wireline network with fiber-to-the-premises over the next several years.

Moody's also lowered the ratings of the individual wireline operating companies to reflect expected pressure on their operating and financial profiles from competition, combined with the costs of the network upgrade.

Moody's upgraded MCI's long-term debt ratings to Ba3 from B2 based on expected synergy benefits resulting from its acquisition by Verizon, as well as Verizon's likely willingness to financially support MCI, should it be required.

The A3 long-term debt rating of Verizon Wireless was placed on review for possible upgrade, reflecting Moody's expectation that continued strong revenue growth, an excellent cost structure and very low churn will lead to steadily improving earnings and cash flows, which, in combination with a very significant change in its earnings distribution policy, will allow Verizon Wireless to delever rapidly.

The outlook is stable. These actions resolve the reviews initiated on Feb. 14, 2005, when Verizon announced its plan to acquire MCI for about $8.9 billion in cash, stock and assumed debt.

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