

5.	Debt

Changes to debt during the nine months ended September 30, 2018 were as follows:



(dollars in millions)	Debt Maturing within One Year			Long-term Debt			Total
Balance at January 1, 2018	$	3,453		$	113,642		$	117,095
Proceeds from long-term borrowings	247			5,685			5,932
Proceeds from asset-backed long-term borrowings	—			3,216			3,216
Repayments of long-term borrowings and capital leases obligations	(1,435		)	(8,341		)	(9,776		)
Repayments of asset-backed long-term borrowings	(2,275		)	(640		)	(2,915		)
Reclassifications of long-term debt	6,549			(6,549		)	—
Other	(37		)	(573		)	(610		)
Balance at September 30, 2018	$	6,502		$	106,440		$	112,942

March Tender Offers

In March 2018, we conducted tender offers for 13 series of notes issued by Verizon with coupon rates ranging from 1.750% to 5.012% and maturity dates ranging from 2021 to 2055 (March Tender Offers). In connection with the March Tender Offers, we purchased $2.9 billion aggregate principal amount of Verizon notes for total cash consideration of $2.8 billion. In addition to the purchase price, any accrued and unpaid interest on the purchased notes was paid to the date of purchase.

June Exchange Offers and Tender Offers

In June 2018, we completed exchange offers and tender offers for 13 series of notes issued by Verizon (June Old Notes) for: (1) new notes issued by Verizon in the case of the exchange offers; or (2) cash in the case of the tender offers (together, the June Exchange Offers and Tender Offers). The June Old Notes had both fixed coupon rates ranging from 1.750% to 5.150% and floating rates, and had maturity dates ranging from 2020 to 2024. In connection with the June Exchange Offers and Tender Offers, we issued $4.3 billion of Verizon 4.329% Notes due 2028, in exchange for $4.1 billion aggregate principal amount of June Old Notes as a non-cash financing transaction, and paid $0.5 billion cash to purchase $0.5 billion aggregate principal amount of June Old Notes. In addition to the exchange or purchase price, any accrued and unpaid interest on the June Old Notes accepted for exchange or purchase was paid at settlement.

September Tender Offers

In September 2018, we conducted tender offers for eight series of notes issued by Verizon with coupon rates ranging from 3.850% to 5.012% and maturity dates ranging from 2039 to 2055 (September Tender Offers). In connection with the September Tender Offers, we purchased $1.9 billion aggregate principal amount of Verizon notes with carrying amount of $1.5 billion after discounts and issuance costs, for total cash consideration of $1.8 billion. In addition to the purchase price, any accrued and unpaid interest on the purchased notes was paid to the date of purchase.

Debt Issuance and Redemption

During May 2018, we issued $0.7 billion aggregate principal amount of 5.320% notes due 2053. The issuance of these notes resulted in cash proceeds of approximately $0.7 billion, net of issuance costs. The net proceeds were primarily used for general corporate purposes including the repayment of debt. In addition, we issued $1.8 billion aggregate principal amount of floating rate notes due 2025. The issuance of these notes resulted in cash proceeds of approximately $1.8 billion, net of issuance costs. The floating rate notes bear interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus 1.100%, which will be reset quarterly. The net proceeds were primarily used for the repurchase of a portion of the then outstanding $2.5 billion aggregate principal amount of our other floating rate notes due 2025 that bore interest at a rate of three-month LIBOR plus 1.372%, which reset quarterly.

During May 2018, we repurchased in whole the $2.5 billion aggregate principal amount of such floating rate notes due 2025, at 100% of the principal amount of such notes, plus accrued and unpaid interest to the date of redemption.

During the three months ended September 30, 2018, we repurchased an aggregate of approximately $0.8 billion principal amount of debt through open market repurchases. We also repaid $0.4 billion for a Verizon floating rate note that matured in September 2018.

During October 2018, we notified investors of our intention to redeem in November 2018 in whole $0.2 billion aggregate principal amount of 2.550% notes due 2019.

Commercial Paper Program

As of September 30, 2018, we had no commercial paper outstanding.

Asset-Backed Debt

As of September 30, 2018, the carrying value of our asset-backed debt was $9.2 billion. Our asset-backed debt includes notes (the Asset-Backed Notes) issued to third-party investors (Investors) and loans (ABS Financing Facilities) received from banks and their conduit facilities (collectively, the Banks). Our consolidated asset-backed debt 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 collateralizing asset-backed debt securities 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 in our condensed consolidated balance sheets.

Proceeds from our asset-backed debt transactions are reflected in 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 in our condensed consolidated balance sheets.

Asset-Backed Notes

In March 2018, we issued approximately $1.2 billion aggregate principal amount of senior and junior Asset-Backed Notes through an ABS Entity. The Class A-1a senior Asset-Backed Notes had an expected weighted-average life to maturity of 2.49 years at issuance and bear interest at 2.820% per annum, the Class A-1b senior Asset-Backed Notes had an expected weighted-average life to maturity of 2.49 years at issuance and bear interest at one-month LIBOR plus 0.260%, which rate will be reset monthly, the Class B junior Asset-Backed Notes had an expected weighted-average life to maturity of 3.14 years at issuance and bear interest at 3.050% per annum and the Class C junior Asset-Backed Notes had an expected weighted-average life to maturity of 3.36 years at issuance and bear interest at 3.200% per annum.

In October 2018, we issued approximately $1.6 billion aggregate principal amount of senior and junior publicly registered Asset-Backed Notes through an ABS Entity. The Class A-1a senior Asset-Backed Notes had an expected weighted-average life to maturity of 2.51 years at issuance and bear interest at 3.230% per annum, the Class A-1b senior Asset-Backed Notes had an expected weighted-average life to maturity of 2.51 years at issuance and bear interest at one-month LIBOR plus 0.240%, which rate will be reset monthly, the Class B junior Asset-Backed Notes had an expected weighted-average life to maturity of 3.24 years at issuance and bear interest at 3.380% per annum and the Class C junior Asset-Backed Notes had an expected weighted-average life to maturity of 3.41 years at issuance and bear interest at 3.550% 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. The two year revolving period of the Asset-Backed Notes we issued in July 2016 ended in July 2018, and we began to repay principal on the 2016-1 Class A senior Asset-Backed Notes in August 2018. During the three months ended September 30, 2018, we made aggregate repayments of $0.2 billion.

ABS Financing Facilities

In May 2018, we entered into a second device payment plan agreement financing facility with a number of financial institutions (2018 ABS Financing Facility). Under the terms of the 2018 ABS Financing Facility, the financial institutions made advances under asset-backed loans backed by device payment plan agreement receivables of business customers for proceeds of $0.5 billion. The loan agreement has a final maturity date in December 2021 and bears interest at a floating rate. There is a one year revolving period beginning from May 2018 during which we may transfer additional receivables to the ABS Entity. Subject to certain conditions, we may also remove receivables from the ABS Entity. Under the loan agreement, we have the right to prepay all or a portion of the advances 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 May 2019, except in certain circumstances. As of September 30, 2018, the 2018 ABS Financing Facility is fully drawn and the outstanding borrowing under the 2018 ABS Financing Facility was $0.5 billion.

We entered into an ABS Financing Facility in September 2016 with a number of financing institutions (2016 ABS Financing Facility). The two year revolving period of the two loan agreements entered into in September 2016 and May 2017 pursuant to the 2016 ABS Financing Facility ended in September 2018. As a result of a $2.0 billion prepayment in June 2018, a $1.5 billion drawdown in August 2018, and a $0.7 billion repayment in September 2018, aggregate outstanding borrowings under the two loans were $1.2 billion as of September 30, 2018. Under the loan agreements, we have the right to prepay all or a portion of the advances at any time without penalty, but in certain cases, with breakage costs. Subject to certain conditions, we may also remove receivables from the ABS Entity.

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 in our condensed consolidated balance sheets were as follows:



	At September 30,		At December 31,
(dollars in millions)	2018		2017
Assets
Account receivable, net	$	9,158	$	8,101
Prepaid expenses and other	858		636
Other assets	3,147		2,680

Liabilities
Accounts payable and accrued liabilities	6		5
Short-term portion of long-term debt	4,436		1,932
Long-term debt	4,763		6,955

See Note 6 for additional information on device payment plan agreement receivables used to secure asset-backed debt.

Credit Facilities

In April 2018, we amended our $9.0 billion credit facility to increase the capacity to $9.5 billion and extend its maturity to April 4, 2022. As of September 30, 2018, the unused borrowing capacity under our $9.5 billion credit facility was approximately $9.4 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.

In March 2016, we entered into a $1.0 billion equipment credit facility insured by Eksportkreditnamnden Stockholm, Sweden, the Swedish export credit agency. As of September 30, 2018, we had an outstanding balance of $0.8 billion. We used this credit facility to finance network equipment-related purchases.

In July 2017, we entered into equipment credit facilities insured by various export credit agencies providing us with the ability to borrow up to $4.0 billion to finance equipment-related purchases. The facilities have borrowings available through October 2019, contingent upon the amount of eligible equipment-related purchases that we make. During the three and nine months ended September 30, 2018, we drew down $1.3 billion and $3.0 billion, respectively, from these facilities, of which $2.9 billion remained outstanding as of September 30, 2018.

Non-Cash Transaction

During the nine months ended September 30, 2018 we financed, primarily through alternative financing arrangements, the purchase of approximately $1.0 billion of long-lived assets consisting primarily of network equipment. During the nine months ended September 30, 2017 we financed, primarily through alternative financing arrangements, the purchase of approximately $0.4 billion of long-lived assets consisting primarily of network equipment. At both September 30, 2018 and 2017, $1.1 billion relating to these 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 are not reflected within Capital expenditures in our condensed consolidated statements of cash flows.

Early Debt Redemptions

During the three and nine months ended September 30, 2018, we recorded early debt redemption costs of $0.5 billion and $0.7 billion, respectively, which were recorded in Other income (expense), net in our condensed consolidated statements of income.

Guarantees

We guarantee the debentures of our operating telephone company subsidiaries. As of September 30, 2018, $0.8 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 as a result of 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 September 30, 2018, $0.4 billion aggregate principal amount of these obligations remained outstanding.