- Moody's lowers rating to six levels below investment grade
- Cites brutal competition and refinancing risk as concerns
Bondholders of wireless carrier Sprint Corp. were blindsided after Moody’s Investors Service cut the credit rating of the largest U.S. junk-rated company.
Sprint bonds lost more than $1.5 billion since Moody’s lowered the company’s credit rating yesterday to B3 from B1, or six levels below investment-grade, citing "brutal competition" in the U.S. wireless industry that will pressure even the strongest operators. The New York-based ratings firm also cast doubt on the telecom operator’s ability to refinance more than $12 billion of debt coming due in the next five years without additional support from its majority shareholder -- Softbank Group Corp.
The rating reduction was based on the company’s "highly leveraged capital structure, intense competitive challenges, a deteriorating liquidity position," Moody’s analysts, led by Dennis Saputo, wrote in the report. "The negative outlook reflects our belief that Sprint is going to need significant additional funding. It remains uncertain whether or not the capital markets will be receptive to additional funding."
“This is an off-cycle action by Moody’s without any input from the company," Dave Tovar, a spokesman for Sprint, said. "We have a funding plan to support our turnaround efforts and our goal would be to not raise additional capital from the public debt or equity markets or sell Spectrum in the foreseeable future. We are leveraging our business relationship with Softbank and working closely with them to finalize our funding plan in the coming months.”
Sprint’s $4.25 billion of 7.875 percent notes due in 2023 have dropped to 91.5 cents on the dollar from 98.6 cents at the start of the week, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Standard & Poor’s also has a negative outlook on Overland Park, Kansas-based Sprint’s bonds and grades them B+, or four levels below investment grade. A similar move by S&P could jeopardize the ability of some of the largest money managers to hold on to Sprint debt, as they typically limit exposure to less creditworthy securities.
With almost $30 billion of bonds, Sprint is the largest component of the Bloomberg High Yield Bond index by market value.