(Updates with Double A class sold, details)
By Joy Wiltermuth
NEW YORK, July 14 (IFR) - Verizon Wireless this week priced
the first US rated bond using cellphone contracts as collateral,
a milestone issue that may pave the way for a new asset class in
the ABS market.
Verizon and peers such as AT&T, T-Mobile and Sprint already
sell unrated securitizations of phone payment and lease plans to
banks in private deals.
But the runaway success of Verizon's public US$1.169bn
trade, which saw order books peak around US$12bn, could open a
new and potentially massive avenue of funding.
This looks especially attractive as the companies have to
pay upfront for the phones - and then wait it out through months
or years of customer payments to recoup that money.
"Clearly they want to get rid of that working capital," said
Michael Dimler, a senior credit analyst focused on technology
and telecoms at Morningstar.
But he cautioned that the nascent sector would have to prove
itself through a credit downturn before it would get mainstream
"Everybody thought that nobody was going to default on their
mortgages," Dimler said.
With the move toward a monthly payment plan model in the
cellphone industry, the major carriers have huge inventories of
contracts ripe for securitization.
Moody's Investors Service said in February that the phone
contract sector could potentially grow into an ABS asset class
worth tens of billions of dollars.
Verizon has already been securitizing about US$2bn of phone
finance plans per quarter through private deals sold to banks,
CFO Francis Shammo told an industry conference last month.
But he said the plan was to phase out those trades and
replace them with public ABS financing.
Verizon and AT&T are both rated BBB+ by S&P, and with their
focus on phone sales - and high corporate ratings - would seem
to be especially likely candidates to grow the market.
"Verizon could be blazing a trail here," another telecoms
According to S&P Global Ratings, the trade was backed by
roughly three million cellphone payment plans to borrowers with
an average FICO score of 708 and monthly payments of US$28.
Its top US$1bn class of 2.52-year Triple A notes cleared at
55bp over interpolated swaps to yield 1.431%, or 10bp-15bp
tighter than guidance, bankers and investors said.
Two 3.22-year classes of Double A and Single A rated notes
were initially retained on Tuesday, according to one banker on
Investors, however, opted to scoop up the entire US$84.52m
class of Double A securities on Thursday after the Triple As
rallied sharply in secondary trading.
"I think this deal was a success beyond anyone's
expectations," one banker involved in the transaction said.
"I'd be very surprised if other telcos didn't follow suit."
Alessandro Pagani, head of securitized assets at Loomis,
Sayles & Company, said the trade was a positive milestone for a
market still struggling to shake off its tarnished image.
"There have been so many years of bad publicity around
," he said. "This shows it can be used for good
Bank of America Merrill Lynch, Barclays and MUFG led the
(Reporting by Joy Wiltermuth; Editing by Marc Carnegie)