Verizon Wireless says it intends to follow through with its pending acquisition of Alltel Corp. despite tough credit-market conditions, but Wall Street is showing some signs of jitters that the deal won't close.The carrier, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, announced in June it would buy Little Rock, Ark.-based Alltel in a deal valued at $28.1 billion. That included taking on $22.2 billion in debt mostly tied to Alltel's leveraged buyout last year by a pair of private-equity firms.
Verizon's plan was to issue new debt to repay Alltel's term loans, but in the current market it faces higher interest rates than it anticipated.
That has led to some speculation on Wall Street that Verizon may try to back out. Alltel's term loans are trading at about 91 cents on the dollar, according to Reuters Loan Pricing Corp. If investors were confident of a Verizon deal, the debt would be trading closer to par, analysts say. The cost of credit-default swap contracts -- insurance against an Alltel default -- has more than doubled in the last month, though the cost is significantly less than before the Verizon acquisition was announced.
But Verizon says it is continuing to push forward with the acquisition and is in the final stages of regulatory approval. The Federal Communications Commission is scheduled to vote on the merger as soon as Nov. 4.
Verizon's challenge will be to arrange financing that isn't too costly. In a brief interview last week, Verizon Chairman and Chief Executive Ivan Seidenberg said he expects interest rates to come down, but higher-than-anticipated borrowing costs won't derail the Alltel deal.
"This is an asset that's going to be valuable to us for 20 or 30 years," Mr. Seidenberg said. By acquiring Alltel, which has more than 13 million customers, Verizon would vault to No.1 among U.S. wireless carriers with about 82 million subscribers.
An Alltel spokesman declined to comment.
Other parties involved in the deal have strong incentives to complete it. Alltel's private-equity owners, TPG Capital and GS Capital Partners, a unit of Goldman Sachs Group Inc., are eager to exit the investment, which will net them a profit of roughly $1.3 billion.
The banks that funded Alltel's buyout -- including Barclays PLC, Citigroup Inc., Royal Bank of Scotland Group PLC and Goldman -- will be able to cut potential losses.
"Everyone has an incentive to make this work," Mr. Seidenberg said.
Mr. Seidenberg declined to say whether Verizon will try to renegotiate a lower deal price with Alltel's owners and the banks. People close to the deal said they believed no such discussions are under way now. Those people said it would be difficult under the parties' strict contract for Verizon to alter deal terms or back out entirely.
