Sprint shares fall as analyst cites bankruptcy risk

Mon Mar 19, 2012 5:41pm EDT

Dan Hesse, CEO of Sprint Nextel Corporation delivers his keynote address at the Cellular Telecommunications Industry Association (CTIA) Enterprise & Applications event in San Diego, California October 11, 2011. REUTERS/Mike Blake

Dan Hesse, CEO of Sprint Nextel Corporation delivers his keynote address at the Cellular Telecommunications Industry Association (CTIA) Enterprise & Applications event in San Diego, California October 11, 2011.

Credit: Reuters/Mike Blake

(Reuters) - Shares in Sprint Nextel fell 4.5 percent on Monday after an analyst report said there is an increasing risk that the No. 3 U.S. mobile provider could end up filing for bankruptcy as the debt-laden company faces tough competition and steep costs due to factors such as its iPhone deal with Apple Inc.

Bernstein analyst Craig Moffett downgraded Sprint shares to "underperform" from "market-perform" saying that the company will face "new and larger risks" if Apple launches a high-speed iPhone later this year based on a technology that Sprint's bigger rivals will have installed more widely than Sprint.

"To be clear, we are not predicting a Sprint bankruptcy. We are merely acknowledging that it is a very legitimate risk. And notwithstanding a recent rally in Sprint shares, we believe that risk is rising," Moffett said in a research note.

Sprint declined to comment on the report.

Moffett said he does not expect Sprint to file for bankruptcy any time soon. But he cautioned that it is due to repay $2.6 billion of its debt in 2015, the same year $3 billion in debt comes due for Clearwire Corp, which is majority owned by Sprint.

Several other analysts said that they did not see Sprint filing for bankruptcy in the next few years even as they said that it has become a riskier bet since it unveiled big investment plans last October.

Along with a $15.5 billion commitment it made to buy iPhones from Apple in the next few years, Sprint is also embarking on a $7 billion network upgrade. It has already raised billions of dollars in capital markets to help fund these projects.

"The risk they could go bankrupt has gone up but that's a very very low risk," said Pacific Crest analyst Steve Clement, adding that Sprint's costly network investment should ultimately help it to run the company more efficiently.

"The idea is you've a much better cost structure to operate off," he said. While Clement noted there were risks that the network upgrade would not work out as planned, "My view is that it's a decent bet they can pull it off."

CreditSights analyst Ping Zhao expects Sprint's credit profile to deteriorate as its spending needs increase. But even if it runs into difficulties, the company could stave off bankruptcy by raising more money in capital markets, Zhao said.

"I don't believe in the next couple of years they're going to be even close to bankruptcy," Zhao said. "They can and do have the capacity to issue secured debt."

Zhao said that Sprint would likely try to avoid incurring secured debt. But she said that it should look for ways to refinance its debt due in 2015 well before its due date.

Both Zhao and Moffett said that another worry is how much more money Sprint will need to spend on buying wireless spectrum to compete better with its much bigger rivals Verizon Wireless and AT&T Inc.

"If the best they can hope for is to add more debt that's not a viable solution," Moffett said.

Sprint shares closed on Monday down 13 cents at $2.76 on the New York Stock Exchange.

(Reporting By Sinead Carew; Editing by Tim Dobbyn)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
VeriDempleman wrote:
Oooh. It’s 1984 again.

That’s the year that AT&T was broken up. This time however, the risk may be on the financial industry who failed to provide incentive to invest in multiple companies in one industry–

If Sprint fails, there’s a good chance that it will be acquired, but then the SEC/DoJ will step in to prevent further monopoly power.

If that happens, then no one will be able to acquire Sprint, and well, the financial industry who shunned Sprint will probably be shooting themselves in the foot. Because here’s the thing- A bankruptcy like this will likely spawn new regulatory action to allow or require Wallstreet Firms to invest in multiple companies in the same industry, instead of those who show monopoly power.

Mar 19, 2012 10:23pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.