CORPORATESISSUER COMMENT 1 JUNE 2015VERIZON COMMUNICATIONS, INC. (VZ)Moodys Senior Unsecured Rating Baa1Moodys Outlook STABond-Implied Rating Baa1CDS-Implied Rating Baa2EDF-Implied Rating Aa2As of 5/29/2015ANALYST CONTACTSAllerton G. Smith 212-553-4058 Sr Dir-Sr Research Analyst allerton.smith@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.Market Signals ReviewVerizons Market-Implied Ratings Fall The CDS-, bond- and EDF'-implied ratings for Verizon are all lower than a year ago. These changes may reflect investor concern over the companys acquisition strategy (discussed below).The bond-implied rating is Baa1, one notch below its A3 level of May 29, 2014 (Figure 1). Over the year it ranged within a narrow band between A3 and Baa1.The CDS-implied rating was A2 one year ago and has declined by three notches to Baa2. It made a short-lived foray to A1 in June and July of 2014, but was unable to sustain the advance. The EDF-implied rating was Aa1 twelve months ago. In January it slipped by one notch to Aa2, and has remained at that level since then.FIGURE 1. VERIZON: MOODYS AND MARKET-IMPLIED RATINGS, LAST YEAR (WEEKLY DATA)MOODY'S ANALYTICS CORPORATES2 1 JUNE 2015 MARKET SIGNALS REVIEW : VERIZONS MARKET-IMPLIED RATINGS FALLAccording to our ratings gap-conditioned transition matrices, companies rated Baa1 with a bond-implied rating of Baa1 have outperformed the broad market 33% of the time, matched the markets performance 28% of the time, and underperformed the broad market 37% of the time over the following 12 months.On May 29, 2014 the CDS-implied ratings gap was +2 notches (Figure 2). It has worsened by three notches to -1 notch. The EDF-implied ratings gap deteriorated a notch to +5 notches and the bond-implied ratings gap from +1 notch to zero notches.Readers will recall that when an implied rating worse...
