TEXT-S&P rates Sprint Nextel proposed notes 'B+'
Nov 8 () - Standard & Poor's Ratings Services today assigned its 'B+' issue-level rating and '3' recovery rating to Overland Park, Kan.-based wireless carrier Sprint Nextel Corp.'s proposed senior notes due 2022 (undetermined amount). We have placed the proposed notes on CreditWatch with positive implications. The '3' recovery rating indicates expectations for meaningful (50% to 70%) recovery in the event of payment default. We expect the company to use net proceeds to repay upcoming maturities, primarily at the Nextel Communications Inc. subsidiary. The ratings on Sprint Nextel, including the 'B+' corporate credit rating, remain on CreditWatch where they were placed with positive implications on Oct. 15, 2012. Sprint Nextel has agreed to sell a 70% stake in itself to Japan-based SoftBank Corp. for about $20 billion and the companies expect the transaction to close in the second quarter of 2013. We will resolve the CreditWatch listing at that point, though we would expect to provide more clarity on the ultimate ratings outcome as the companies make available more information on financial policy and strategic direction. The ultimate corporate credit rating on Sprint Nextel will depend on several factors, including our assessment of its stand-alone credit profile under SoftBank ownership, our view of the strategic relationship between Sprint Nextel and SoftBank, and the corporate credit rating of SoftBank, which is also on CreditWatch (BBB/Watch Neg/--). We don't expect to revise our assessment of Sprint Nextel's business risk, which we currently view as "fair," because the transaction is unlikely to offer any meaningful synergies since the two companies operate in different geographic markets, nor will it alter the competitive dynamics of the U.S. wireless market, which is currently dominated by the larger and more profitable AT&T and Verizon Wireless. The business benefits of the transaction would likely only occur over time, in terms of cost savings on handsets and network equipment, and as a result of greater financial flexibility allowing consistently higher investment in the business. Still, we believe Sprint Nextel's financial risk profile, which we view as "highly leveraged," would benefit from an $8 billion cash infusion from SoftBank, which could be used to help fund its network upgrade and accelerate its rollout of fourth generation (4G) services under the Long Term Evolution (LTE) standard, make acquisitions, as well as potentially deleverage its balance sheet. Without the Softbank infusion, our base-case scenario incorporated the expectation that Sprint Nextel would need to raise at least $4.5 billion through 2015 to fund free operating cash flow deficits and to refinance upcoming maturities. The Softbank transaction potentially alleviates this funding need. An important factor in our analysis would be the degree of extraordinary financial support we would expect from the higher-rated SoftBank in a stress scenario at Sprint Nextel. While we do not expect to equalize the ratings of the two companies, we could impute some degree of extraordinary support, which could lead to a higher rating on Sprint Nextel than it would receive on a stand-alone basis. For the corporate credit rating rationale on Sprint Nextel, see the research update published on Oct. 16, 2012. Related Criteria And Research -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012 -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008 -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008 Ratings List Sprint Nextel Corp Corporate Credit Rating B+/Watch Pos New Rating Sprint Nextel Corp. Proposed Senior Notes Due 2022 B+/Watch Pos Recovery Rating 3 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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