Fitch Rates Sprint's Senior Notes 'B+/RR4'; Outlook Stable

  Fitch Rates Sprint's Senior Notes 'B+/RR4'; Outlook Stable

Business Wire

CHICAGO -- December 9, 2013

Fitch Ratings has assigned a 'B+/RR4' rating to Sprint Corporation's (Sprint)
proposed benchmark-sized senior unsecured notes due 2024. The proceeds from
the offering would be used for general corporate purposes, which may include
redemptions or service requirements of outstanding debt, network expansion,
and modernization. The Rating Outlook is Stable. A full list of ratings
follows at the end of this release.

The senior notes will be fully and unconditionally guaranteed on a senior
unsecured basis by Sprint's wholly owned subsidiary, Sprint Communications,
Inc. Sprint fully and unconditionally guarantees on a senior basis the
outstanding securities issuances of Sprint Communications Inc., Sprint Capital
Corporation, Clearwire Communications LLC and iPCS, Inc. Consequently, Fitch
believes Sprint has created a guarantee structure such that the senior notes
issued at Sprint Capital Corp., Sprint Communications Inc. and Sprint are pari
passu.

KEY RATING DRIVERS

The rating affirmation reflects Fitch's view that Sprint's financial profile
will remain weak through at least 2014 due to the significant cash deficit
during the next two years and the associated debt borrowing that has
substantially increased leverage. Sprint estimated this deficit at
approximately $10 billion in its June 2013 proxy filing driven by $16 billion
in capital investment to keep pace with growing industry demand and the
competitive environment.

Fitch believes the cumulative $26 billion in capital spending the next four
years also reflects the underinvestment in Sprint's network and the need to
accelerate the deployment of capital to improve Sprint's competitive position.
Looking forward, as Sprint leverages it cost reduction efforts, significant
margin expansion should occur in the 2014 and 2015 timeframe. Cost reduction
efforts could drive up to $2 billion in savings. The improved cash generation
when coupled with reduced capital investment should allow for the company to
strengthen its financial profile, including the potential to generate free
cash flow by the end of 2015. Leverage is expected to be at upper end of the
5x range for 2013 before declining in 2014.

OPERATIONAL TRENDS

Sprint also faces material execution risk across the numerous strategic
objectives that the company is pursuing. Fitch remains concerned with postpaid
gross additions trends that were negatively affected in the past due to the
recapture of its iDEN subscribers and aggressive LTE marketing by its
competitors. Sprint will continue to face postpaid subscriber headwinds into
2014 due to the negative effect from mixed accounts (iDEN and Sprint
platform), network vision related churn, competitive environment and lack of
density with its LTE footprint.

As such, postpaid revenue will remain pressured and Sprint will need to find
ways to reinvigorate growth in 2014 as competitive intensity remains high
among the national and wholesale providers for postpaid subscribers.

The accelerated network investment to improve capacity, data bandwidth and
customer experience is a key strategic component of Sprint plans. This
includes Sprint's plans to deploy Clearwire's 2.5 GHz spectrum over the next
several years to increase both capacity and bandwidth. The company hopes the
improved network when combined with its differentiated unlimited plan and
Softbank's expertise will increase its share of industry gross additions.
Fitch believes Verizon and AT&T Wireless are currently much better positioned
to leverage their scale, capital investment, subscriber bases and spectrum
portfolios to capture additional share and monetize future growth,
particularly through the shared data plans.

Consequently, Sprint's challenge is magnified, as industry postpaid and
prepaid additions are expected to contract further as the industry matures.
Additional avenues for incremental revenue growth include mobile
broadband/tablet devices and machine-to-machine opportunities.

LIQUIDITY, MATURITIES & FINANCIAL COVENANTS

For the third quarter of 2013, Sprint's liquidity position is supported by
$7.5 billion of cash and short-term investments and $2.1 billion borrowing
capacity under a five-year $3 billion revolving credit facility due 2018.
Letters of credit outstanding were $915 million. Sprint also maintains a
second tranche of a $500 million vendor financing facility that became
available for borrowing on April 1, 2013. As of Sept. 30, 2013, up to $174
million was available through May 31, 2014.

Fitch expects Sprint will maintain at least $2 billion of cash going forward
to maintain adequate liquidity for its strategic plans. Sprint's current cash
position along with this most recent offering will help fund on-going
operating deficits related to the capital investment and the expected auction
for TV broadcast spectrum. Debt refinancing and redemptions have significantly
reduced Sprint's maturity profile from previous years. During the next four
years, $385 million, $704 million, $2,505 million and $2,402 million of debt
comes due, respectively.

After considering the $6.5 billion offering Sprint raised in September 2013,
the company disclosed there was risk that it would exceed the 6.25x leverage
ratio at Sept. 30, 2013. Accordingly, Sprint obtained a limited waiver until
Dec. 31, 2013 from each of the lenders under the credit facilities that
allowed Sprint to exclude $4.5 billion of indebtedness from the leverage ratio
calculation. This enabled Sprint to be in compliance with the financial
covenant at 5.4x for Sept. 30, 2013. As a requirement under the waivers,
Sprint maintained a segregated reserve account that was used to retire
existing Clearwire indebtedness in December.

The unsecured credit facilities at Sprint benefit from upstream unsecured
guarantees from all material subsidiaries. The credit agreement allows
carve-outs for indebtedness composed of unsecured guarantees that are
expressly subordinated to the credit facility. The unsecured junior guaranteed
debt is senior to the unsecured notes at Sprint Nextel and Sprint Capital
Corporation. The unsecured senior notes at these entities are not supported by
an upstream guarantee from the operating subsidiaries.

The $1 billion vendor financing facility is jointly and severally borrowed by
all of the Sprint subsidiaries that guarantee the Sprint credit facility,
Export Development Canada loan and junior guaranteed notes. The facility
additionally benefits from a parent guarantee and first priority lien on
certain network equipment. This places the vendor facility structurally ahead
of the unsecured notes.

RATING SENSITIVITY/DRIVERS

Positive: Future developments that may, individually or collectively, lead to
a positive rating action include:

--Execution on cost reduction opportunities leading to expansion in operating
EBITDA margins approaching 20%;

--Improvement in cash generation such that free cash flow (FCF) prospects for
the year are approaching breakeven to positive;

--Improved funds from operations (FFO) interest coverage approaching 4x;

--Improved FFO adjusted leverage approaching 4x;

--Additional infusions of capital by Softbank;

--Improvement in postpaid churn by at least 10-20 basis points;

--Positive trends in gross addition share.

Negative: Future developments that may, individually or collectively, lead to
negative rating action include:

--Lack of an expected turn-around in FCF generation with persistent negative
trends;

--Aggressive spectrum purchases that would increase leverage over 5.5x on a
sustained basis;

--Postpaid subscriber trends materially weaken;

--Gross addition share gains fail to materialize;

--Additional material acquisitions.

The ratings of Sprint Corporation and its subsidiaries are as follows:

Sprint Corporation;

--IDR at 'B+';

--Senior unsecured notes at 'B+/RR4'.

Sprint Communications Inc.;

--IDR at 'B+';

--$3 billion senior unsecured credit facility at 'BB/RR2';

--Junior guaranteed unsecured notes at 'BB/RR2';

--Senior unsecured notes at 'B+/RR4'.

Sprint Capital Corporation;

--IDR at 'B+';

--Senior unsecured notes at 'B+/RR4'.

Clearwire Communications LLC

--IDR 'B+';

--Senior unsecured notes 'BB+/RR1';

--First priority senior secured notes 'BB+/RR1'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013);

--'Rating Telecom Companies: Sector Credit Factors' (Aug. 9, 2012).

Applicable Criteria and Related Research:

Rating Telecom Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682323

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685552

Corporate Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=811107

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Contact:

Fitch Ratings
Primary Analyst:
Bill Densmore, +1-312-368-3125
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
David Peterson, +1-312-368-3177
Senior Director
or
Committee Chairperson:
Michael Weaver, +1-312-368-3156
Senior Director
or
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brian.bertsch@fitchratings.com
 
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