Fitch Rates Sprint Nextel's Senior Notes 'B+/RR4'; Ratings Remain on Rating
NEW YORK -- November 08, 2012
Fitch Ratings has assigned a 'B+/RR4' rating to Sprint Nextel Corporation's
(Sprint Nextel) benchmark-sized offering of senior unsecured notes due 2022.
The proceeds from the offering are expected to be used for redemption of
outstanding debt. All of Sprint Nextel's ratings remain on Rating Watch
Positive. As of Sept. 30, 2012 Sprint Nextel had approximately $21.3 billion
of debt outstanding.
The issuance is in line with the company's strategy to opportunistically
refinance looming scheduled debt maturities. In Fitch's view, Sprint has
strengthened its liquidity position and reduced medium-term refinancing risks.
However the company's scheduled maturities total approximately $3.3 billion
during the next three years. Maturities include approximately $300 million in
2013, $1.4 billion in 2014, and $1.6 billion in 2015.
Sprint Nextel's liquidity position is supported by $6.3 billion of cash and
$1.2 billion borrowing capacity under its revolving credit agreement which is
set to expire during October 2013. In addition, approximately $423 million is
available through May 31, 2103 under the first tranche of the secured
equipment credit facility. The $8 billion cash investment by Softbank Corp.
affords Sprint Nextel considerable financial flexibility to address
refinancing requirement and strategic investments.
Sprint Nextel will also likely need to consider parameters for a new facility
by the end of 2012 or early 2013, given the October 2013 maturity. Sprint was
also considering parameters for $2 billion in additional vendor financing with
its equipment suppliers. Given this new cash injection, additional uncertainty
exists whether Sprint Nextel would still raise additional financing by this
means. The current liquidity (absent the Softbank cash infusion) addressed
Sprint Nextel's material cash requirements expected through at least 2013,
which could be in excess of $5 billion due primarily to the network
modernization project and iPhone rollout.
The Rating Watch Positive reflects Fitch's belief that the strategic agreement
Sprint Nextel entered with Softbank Corp. including the $8 billion cash
infusion strengthens Sprint Nextel's financial and operating profile longer
term. With $8 billion in added funding, Fitch believes Sprint Nextel could
advance or accelerate certain strategic initiatives to improve their
longer-term competitive position. Additional spectrum for Sprint Nextel's 4G
network, other consolidation opportunities, and accelerating LTE build-outside
of current plans could likely be a high priority.
Resolution of the Rating Watch depends upon several factors. These factors
would include fully assessing the degree of linkage in the relationship
between Softbank and Sprint Nextel for legal ties, operational ties and
strategic ties. Fitch would access Sprint Nextel execution on stated
objectives and whether the company demonstrated further operational and
financial improvements as expected. Any planned uses of the cash infusion
would also be reviewed.
The majority of debt at Sprint Nextel has change of control provisions. The
change of control is triggered in the event when more than 50% of the voting
power of the company changes and a downgrade occurs to the debt ratings. The
debt at Nextel and Sprint Capital Corp. does not have change of control
On Oct. 15, 2012, Sprint Nextel and Softbank reached a series of definitive
agreements under which Softbank will invest $20.1 billion, consisting of $12.1
billion to be distributed to Sprint Nextel stockholders and $8 billion to
Sprint Nextel. As part of Softbank's cash contribution, Sprint Nextel issued a
seven-year, convertible bond with a face amount of $3.1 billion to Softbank.
Immediately prior to the merger assuming regulatory and shareholder approval,
the bond will be converted into shares of Sprint. Closing of the transaction
is anticipated mid-2013.
WHAT COULD TRIGGER A RATING ACTION
Negative: The ratings are on Rating Watch Positive. As a result, Fitch does
not currently anticipate developments with a material likelihood, individually
or collectively, leading to a rating downgrade.
Positive: The ratings are on Rating Watch Positive. Future developments that
may, individually or collectively lead to positive rating action include:
--Expected completion of merger with the $8 billion cash injection
--The degree of operational, strategic, and legal linkage between Softbank and
--Trends associated with operating performance for postpaid subscribers,
churn, and ARPU;
--Sprint Nextel's continued progress with network modernization plans
including cost improvements and LTE network deployment.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Revenue-Supported Rating Criteria and U.S. Public Power Rating Criteria, this
action was informed by information from CreditScope.
Applicable Criteria and Related Research:
--'Revenue-Supported Rating Criteria', June 12, 2012;
--'U.S. Public Power Rating Criteria', Jan. 11, 2012.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
U.S. Public Power Rating Criteria
Rating Telecom Companies
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