Moody's says may cut Sprint ratings to junk

NEW YORK, May 16 (Reuters) - Moody's Investors Service on Friday said it may cut Sprint Nextel Corp (S.N: Quote, Profile, Research, Stock Buzz) rating to junk bond levels on concerns about the company's ability to improve its operations and generate enough cash.

The No. 3 wireless service provider's rating already has been cut to junk by Standard & Poor's and Fitch Ratings. Moody's rates Sprint Nextel "Baa3," the lowest investment grade level and just a notch above junk.

"The review is prompted by our concerns that the company's ability to restore the health of its operations and generate adequate levels of free cash flow may be curbed by powerful competitive challenges and slowing subscriber growth," Moody's said in a statement.

Sprint on Monday posted a first-quarter net loss of $505 million as customers defected to larger rivals and said it may seek changes to its credit agreements.

Moody's said it may cut Sprint's ratings if it concludes that the company will have difficulty turning around its business within a reasonable timeframe and if its debt burden remains too high.

The company reported net debt of $19.5 billion at the end of the first quarter. Sprint expects to have enough cash for operations and repayment of maturing debt through the end of 2009, but said it may enter into discussions with creditors to obtain waivers or amendments on credit facilities.

Sprint's 6.9 percent notes due in 2019 traded at 88.3 cents on the dollar on Friday and the cost to insure its debt narrowed to 346 basis points, or $346,000 a year to protect $10 million of debt, down from 355 basis points on Thursday.

Sprint's credit default swaps have been tightening on expectations that the company may be acquired by Deutsche Telekom (DTEGn.DE: Quote, Profile, Research, Stock Buzz) or that it may spin off its money losing Nextel unit.

Chief Executive Dan Hesse on Monday said the separation of Nextel would be complex but that "nothing is off the table."

(Reporting by Anastasija Johnson; Editing by Diane Craft)