Sprint Shares, Bonds Fall to Multiyear Lows on Turnaround Doubts

  • Morgan Stanley credit analyst Hamburger sounds alarm on loans
  • Stock is down 32% in January alone on liquidity concerns

Shares of Sprint Corp., the fourth-largest U.S. wireless carrier, fell 7.2 percent to the lowest level in more than two years as investors grew more pessimistic about its ability to pay down debt. Its bonds led declines among junk-rated debt Wednesday.

The company has no clear path to a turnaround that could lead to realizing the full value of its bonds or to recover that value in a restructuring or bankruptcy, Morgan Stanley credit analyst David Hamburger said in a note.

Sprint’s $1.5 billion of 7 percent bonds due 2020 plunged 12 cents on the dollar to 61 cents at 4:24 p.m., in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the lowest since August 2012. The company’s $2 billion of 6 percent notes due in December dropped dropped 2.6 cents to 95.1 cents.

The stock closed down 7.2 percent to $2.45 after falling as much as 15 percent earlier Wednesday. The company’s press representatives didn’t respond to messages.

Moody’s Investors Service lowered Sprint’s credit rating in September 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 ratings firm also cast doubt on the wireless company’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.

While Sprint has added subscribers in the past few quarters using promotions, it now has about half the cash and cash equivalents it had just a year ago. It had a little more than $2 billion of cash and short-term investments on its books as of the end of September, which is about equal to the debt it has to refinance in 2016, a year that so far has been tough for bond issuers.

The carrier is aiming to cut $2 billion to $2.5 billion in costs, and is looking in a range of areas, including infrastructure and roaming fees -- the money it pays other carriers to handle calls outside the reach of its network.

Analysts have expressed skepticism that Sprint’s cost-cutting plans will work. The pressure has pushed the carrier’s shares down 32 percent in January alone.

“It’s all about the network plan compounded by a tough tape where levered companies are getting hammered,” said Jonathan Chaplin, an analyst at New Street Research LLC.

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