TEXT-S&P:Ratings on Softbank placed on creditwatch negative

Fri Oct 12, 2012 4:47am EDT

Oct 12 -

Overview

-- Softbank has announced it is in discussions with Sprint Nextel to invest in the U.S.-based wireless company.

-- The transaction, if it proceeds, may undermine Softbank's financial profile, partly because of the weaker financial standing of Sprint Nextel.

-- We placed our corporate credit and issue ratings on Softbank on CreditWatch with negative implications.

-- We will resolve the CreditWatch status depending on the progress of the negotiations. Key factors for Softbank's credit quality include the amount of the investment, the financial scheme of the transaction, Sprint Nextel's position in Softbank's global strategy, and Softbank's financial policy and willingness to support Sprint Nextel.

Rating Action

On Oct. 12, 2012, Standard & Poor's Ratings Services placed its 'BBB' long-term corporate credit and senior unsecured debt ratings on Softbank Corp. on CreditWatch with negative implications, based on the company's announcement that it is in discussions to invest in U.S.-based wireless service provider Sprint Nextel Corp. (B+/Watch Pos/--). The transaction, if it proceeds, may undermine Softbank's financial risk profile, in our view. We will resolve the CreditWatch status depending on the progress of the negotiations.

Rationale

In our view, plans by Softbank to invest substantially to expand and upgrade its mobile network in Japan will pressure its free operating cash flow for at least the next few years. Accordingly, regardless of how the company finances the potential investment, Sprint Nextel's significantly weaker financial risk profile may materially undermine Softbank's "intermediate" financial risk profile, under our criteria. Sprint Nextel's financial risk profile is "highly leveraged" and its liquidity is "less than adequate." We also expect material deficits in Sprint Nextel's free operating cash flow over the next few years. Preliminarily, we do not believe a potential investment would create meaningful synergies as the two companies operate in different geographic markets. Nor do we expect any immediate benefits to Softbank's current business risk profile, which we currently view as "satisfactory."

CreditWatch

We will resolve the CreditWatch status depending on the progress of the negotiations. Key factors for Softbank's credit quality include the amount of the possible investment; the financial scheme of the transaction; Sprint Nextel's position in Softbank's global strategy; and Softbank's financial policy and its willingness to provide financial support to Sprint Nextel, including its outstanding debt with a change of control clause.

Related Criteria And Research

2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Key Credit Factors: Business And Financial Risks In The Global

Telecommunication, Cable, And Satellite Broadcast Industry, Jan. 27, 2009

Ratings List

CreditWatch Action

To From

Softbank Corp.

Corporate Credit Rating BBB/Watch Neg/-- BBB/Stable/--

Senior Unsecured BBB/Watch Neg BBB

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