Nov 8 - Fitch Ratings has assigned a 'B+/RR4' rating to
Sprint Nextel Corporation's (Sprint Nextel) benchmark-sized offering of senior
unsecured notes due 2022. The proceeds from the offering are expected to be
used for redemption of outstanding debt. All of Sprint Nextel's ratings remain
on Rating Watch Positive. As of Sept. 30, 2012 Sprint Nextel had approximately
$21.3 billion of debt outstanding.
The issuance is in line with the company's strategy to opportunistically
refinance looming scheduled debt maturities. In Fitch's view, Sprint has
strengthened its liquidity position and reduced medium-term refinancing risks.
However the company's scheduled maturities total approximately $3.3 billion
during the next three years. Maturities include approximately $300 million in
2013, $1.4 billion in 2014, and $1.6 billion in 2015.
Sprint Nextel's liquidity position is supported by $6.3 billion of cash and $1.2
billion borrowing capacity under its revolving credit agreement which is set to
expire during October 2013. In addition, approximately $423 million is
available through May 31, 2103 under the first tranche of the secured equipment
credit facility. The $8 billion cash investment by Softbank Corp. affords Sprint
Nextel considerable financial flexibility to address refinancing requirement and
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. 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.
The Rating Watch Positive reflects Fitch's belief that the strategic agreement
Sprint Nextel entered with Softbank Corp. including the $8 billion cash infusion
strengthens Sprint Nextel's financial and operating profile longer term. With $8
billion in added funding, Fitch believes Sprint Nextel could advance or
accelerate certain strategic initiatives to improve their 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 depends upon several factors. These factors would
include fully assessing the degree of linkage in the relationship between
Softbank and Sprint Nextel for legal ties, operational ties and strategic ties.
Fitch would access Sprint Nextel execution on stated objectives and whether the
company demonstrated further operational and financial improvements as expected.
Any planned uses of the cash infusion would also be reviewed.
The majority of debt at Sprint Nextel 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. The
debt at Nextel and Sprint Capital Corp. does not have change of control
On Oct. 15, 2012, Sprint Nextel and Softbank 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. As part of Softbank's cash contribution, Sprint Nextel issued a
seven-year, convertible bond with a face amount of $3.1 billion to Softbank.
Immediately prior to the merger assuming regulatory and shareholder approval,
the bond will be converted into shares of Sprint. Closing of the transaction is
WHAT COULD TRIGGER A RATING ACTION
Negative: The ratings are on Rating Watch Positive. As a result, Fitch does 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
--Trends associated with operating performance for postpaid subscribers, churn,
--Sprint Nextel's continued progress with network modernization plans including
cost improvements and LTE network deployment.