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
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
Sprint Nextel Corp
Corporate Credit Rating B+/Watch Pos
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