TEXT-Fitch may raise Sprint Nextel ratings
Oct 16 - Fitch Ratings has placed the following ratings for Sprint Nextel Corporation (Sprint Nextel) and its subsidiaries on Rating Watch Positive: Sprint Nextel; --Issuer Default Rating (IDR) at 'B+'; --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'. Nextel Communications Inc. (Nextel); --IDR at 'B+'; --Senior unsecured notes at 'B+/RR4'. Sprint Nextel and Softbank Corp. reached a series of definitive agreements under which Softbank will invest $20.1 billion consisting of $12.1 billion to be distributed to Sprint Nextel stockholders and $8 billion to Sprint Nextel. Of Sprint Nextel's cash distribution, Softbank will contribute $3.1 billion through a newly issued seven-year term convertible bond by Sprint Nextel following the merger announcement. Immediately prior to the merger assuming regulatory and shareholder approval, the bond will be converted into shares of Sprint. Post transaction, Softbank will own approximately 70% of Sprint and Sprint equity holders will own the remaining shares. Closing of the transaction is anticipated mid-2013. The Rating Watch Positive reflects Fitch's belief that the strategic agreement with Softbank including the $8 billion cash infusion strengthens Sprint Nextel's financial and operating profile longer-term. With $8 billion in Softbank funding, Fitch believes Sprint Nextel could advance or accelerate certain strategic initiatives to improve its longer-term competitive position. Additional spectrum for Sprint Nextel's 4G network, other consolidation opportunities and accelerating LTE build outside of current plans could likely be a high priority. Resolution of the Rating Watch is dependent upon several factors. These would include fully assessing the degree of linkage with the relationship between Softbank and Sprint Nextel for legal ties, operational ties and strategic ties. Fitch would monitor Sprint Nextel's execution on stated network objectives and whether the company demonstrated further operational and financial improvements as expected. Fitch would also review Sprint Nextel's final capital structure and look for better clarity on planned uses of the cash infusion. Fitch now views Sprint Nextel's liquidity as strong. In the past year, Sprint Nextel has significantly fortified its liquidity position and reduced medium-term refinancing. With its past three debt issuances and a vendor-financed secured credit agreement, the company raised an additional $8 billion of financing. During this time, Sprint has also repaid $4.7 billion of maturing debt. The company's liquidity at the end of the second-quarter 2012 was approximately $8 billion, including $6.8 billion in cash. In addition, up to $500 million is available through May 31, 2013 under the first tranche of the secured equipment credit facility. The current liquidity (absent the Softbank cash infusion) addressed Sprint Nextel's material cash requirements expected through at least 2013, which could be in excess of $5 billion due primarily to the network modernization project and iPhone rollout. Sprint still has sizeable maturities during the next three years totaling approximately $3.3 billion. Maturities include approximately $300 million in 2013, $1.4 billion in 2014, and $1.6 billion in 2015. The new cash infusion gives Sprint Nextel considerable flexibility whether the company will opportunistically seek debt refinancing or repay maturities. Sprint Nextel will also likely need to consider parameters for a new facility by the end of 2012 or early 2013, given the October 2013 maturity. Sprint was also considering parameters for $2 billion in additional vendor financing with its equipment suppliers. Given this new cash injection, additional uncertainty exists whether Sprint Nextel would still raise additional financing by this means. Over 40% of the debt has change of control provisions. The change of control is triggered in the event when more than 50% of the voting power of the company changes and a downgrade occurs to the debt ratings. Specifically, the debt at Nextel Communications Inc. and Sprint Capital Corp. does not have change of control provisions. WHAT COULD TRIGGER A RATING ACTION Negative: The ratings are on Rating Watch Positive. As a result, Fitch's sensitivities do not currently anticipate developments with a material likelihood, individually or collectively, leading to a rating downgrade. Positive: The ratings are on Rating Watch Positive. Future developments that may, individually or collectively lead to positive rating action include: --Expected completion of merger with the $8 billion cash injection; --The degree of operational, strategic, and legal linkage between Softbank and Sprint Nextel. --Trends associated with operating performance for postpaid subscribers, churn, and ARPU; --Final capital structure plans; --Sprint Nextel's continued progress with network modernization plans including cost improvements and LTE network deployment.
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