TEXT-Fitch keeps Sprint Nextel on rating watch positive

Tue Dec 18, 2012 4:42pm EST

Dec 18 - Fitch Ratings maintains the following ratings for Sprint Nextel
Corporation (Sprint Nextel) and its subsidiaries on Rating Watch Positive:

Sprint Nextel

--Issuer Default Rating (IDR) 'B+';

--Senior unsecured credit facility 'BB/RR2';

--Junior guaranteed unsecured notes 'BB/RR2';

--Senior unsecured notes 'B+/RR4'.

Sprint Capital Corporation

--IDR 'B+';

--Senior unsecured notes 'B+/RR4'.

Nextel Communications Inc. (Nextel)

--IDR 'B+'.

Fitch has maintained the Rating Watch Positive after Sprint Nextel entered into 
a definitive agreement to acquire the approximate 50% stake in Clearwire Corp. 
it currently does not own for $2.2 billion. Sprint Nextel will also provide a 
loan of up to $800 million in interim financing in the form of exchangeable 
notes, which will be exchangeable under certain conditions for Clearwire class B
common stock. Under the financing agreement, Sprint has agreed to purchase $80 
million of exchangeable notes per month for up to 10 months beginning in January
2013. The transaction will require regulatory approval and a majority of 
non-Sprint owned Clearwire shares. The Clearwire acquisition, which is 
contingent on the Softbank transaction finalizing, is expected to close mid-2013
at approximately the same time as Softbank.

Fitch believes Clearwire's spectrum assets are integral to Sprint Nextel's 
long-term LTE plans by solving the need for high capacity spectrum in its urban 
cores. This strengthens Sprint's competitive position and ability to 
differentiate unlimited wireless broadband offerings from its national peers. As
such, Fitch views this strategically as a positive event since the acquisition 
would give Sprint Nextel complete control of Clearwire's spectrum and allow 
Sprint to fully integrate Clearwire assets into its network. Thus the 
transaction eliminates future equity contributions, reduces inefficient 
operating expenses and facilitates the execution of its strategic plans. 

From a credit profile perspective, pro forma leverage would increase to over 5x.
Given the increase in leverage, the prospects for a ratings upgrade to 'BB-' 
once the two acquisitions close have potentially diminished. Sprint's execution 
on stated network objectives and whether the company can demonstrate further 
operational and financial improvements in the coming quarters despite the 
increased competitive intensity has elevated importance. Material uncertainty 
also still exists with Sprint's post-transaction capital structure plans and 
uses for Softbank's capital infusion which will be a key factor in the final 
rating decision.

Uncertainty exists whether non-Sprint Clearwire shareholders will approve the 
transaction. Fitch believes Clearwire's stand-alone prospects were bleak due to 
its constrained liquidity, limited access to new capital and inability to 
attract major new customers. Over time, as consolidation has removed potential 
wholesale partners and operators have become more efficient with spectrum assets
through acquisition and swaps, the industry has obviated the need for a 
wholesale operator. Clearwire's lack of additional strategic agreements with 
other operators, limited market access and substantial funding gap left the 
company heavily reliant on Sprint Nextel for further funding. 

Absent Clearwire shareholder approval, a financial restructuring of Clearwire is
quite possible. This would have significant implications and risks for 
Clearwire's stakeholders with an uncertain outcome. In addition, a financial 
restructuring would introduce material uncertainty with Sprint's longer-term 
network and spectrum plans. Clearwire was expected to begin supplying Sprint 
with hotspot capacity for its LTE network beginning in mid-2013.

Fitch now views Sprint Nextel's liquidity as strong despite the significant cash
requirements expected through at least 2013. In addition to the expected $8 
billion from Softbank, Sprint Nextel's liquidity position is supported by $6.3 
billion of cash and $1.2 billion borrowing capacity under its $2.2 billion 
revolving credit agreement at the end of the third quarter 2012. Fitch expects 
Sprint Nextel will consider parameters for a new facility in early 2013 given 
the October 2013 maturity. Approximately $423 million is also available through 
May 31, 2013 under the first tranche of the secured equipment credit facility. 
The incremental Softbank investment has afforded Sprint Nextel considerable 
financial flexibility to address refinancing requirements and strategic 
investments which the company has demonstrated in the past two months.

Sprint has significantly improved its maturity profile as a result of debt 
issuances in the past year and reduced refinancing risk in the midst of a 
capital intensive period. In mid-2011, Sprint had $8 billion in debt maturities 
during the next four years, including $2.3 billion in 2012, $1.8 billion in 
2013, and $1.4 billion in 2014. For the third quarter 2012, pro forma for the 
November $2.3 billion debt issuance, Sprint has approximately $1 billion in debt
maturities during the next three years including $317 million in 2013, $198 
million in 2014 and $500 million in 2015. 

WHAT COULD TRIGGER A RATING ACTION

Negative: The ratings are on a Rating Watch Positive. As a result, Fitch's 
sensitivities do not currently anticipate developments with a material 
likelihood, individually or collectively, of leading to a rating downgrade.

Positive: The ratings are on a Rating Watch Positive. Future developments that 
may, individually or collectively lead to positive rating action include:

--Completion of Softbank merger and expected uses for the $8 billion cash 
injection.

--Plans for post-close capital structure.

--The degree of operational, strategic, and legal linkage between Softbank and 
Sprint Nextel.

--Trends associated with operating performance for postpaid subscribers, churn, 
and ARPU. 

--Sprint Nextel's continued progress with network modernization plans including 
cost improvements and LTE network deployment.
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