Oct 12 -
-- 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.
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.
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."
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
Corporate Credit Rating BBB/Watch Neg/-- BBB/Stable/--
Senior Unsecured BBB/Watch Neg BBB