TEXT-S&P puts Sprint Nextel 'B+' rating on watch positive
(The following statement was released by the rating agency)
Oct 11 - Overview -- Sprint Nextel
has announced it is in talks with Japan's Softbank Corp.
(BBB/Stable/--), which is seeking to buy all or part of Sprint Nextel.
-- We are placing our ratings on Sprint Nextel, including our 'B+' corporate credit rating, on CreditWatch with positive implications.
-- An important factor in our analysis would be the degree of support we would attribute to the higher-rated Softbank.
Rating Action On Oct. 11, 2012, Standard & Poor's Ratings Services placed its 'B+' corporate credit rating, and all other ratings, on Overland Park, Kan.-based wireless service provider Sprint Nextel Corp. on CreditWatch with positive implications. The CreditWatch placement follows Sprint Nextel's announcement that it is in talks with Japan's Softbank Corp. (BBB/Stable/--), which is seeking to buy all or part of Sprint Nextel.
The CreditWatch placement reflects the possibility that we could raise our ratings on Sprint Nextel if Softbank is successful in its negotiations to acquire a large stake in the company.
An important factor in our analysis would be the degree of support we would attribute to the higher-rated Softbank. While we would not expect to equalize the ratings on Sprint Nextel with those on Softbank in the absence of debt guarantees, it is possible that we might impute some degree of support in the ratings, which could also lead to a higher rating on Sprint Nextel than it would have on a stand-alone basis. Key determinants in this part of our analysis would include an assessment of Softbank's longer-term strategies in the U.S. market, any degree of integration with Softbank's Japanese wireless business, as well as the percent ownership acquired.
While there is no information on how such a transaction would be financed, we believe that an acquisition could also lead to improvement in Sprint Nextel's financial risk profile, which we currently view as "highly leveraged," given the company's elevated debt to EBITDA of about 5.8x as of June 30, 2012, our expectation for material free operating cash flow deficits over the next couple of years, and "less than adequate" liquidity.
Preliminarily, we do not believe a potential acquisition would offer meaningful synergies since the two companies operate in different geographic markets, nor do we expect any direct benefits to the current business risk assessment, which we currently view as "fair." Nevertheless, Sprint Nextel would likely benefit from having a parent company with greater financial resources to help fund its network upgrade and accelerate its rollout of fourth-generation (4G) services under the Long Term Evolution (LTE) standard.
Sprint Nextel's capital structure consists of about $21 billion of debt outstanding as of June 30, 2012. We estimate that over 40% of this debt (mainly at the Sprint Nextel Corp. entity) has a change of control provision. Other bonds at the Sprint Capital Corp. and Nextel Communications Inc. entities have no such change of control provision.
As part of our CreditWatch review we will monitor developments related to the discussions between the two companies. We could raise or affirm the ratings on Sprint Nextel if an acquisition or large investment by Softbank is ultimately consummated. We would expect to provide more clarity on the ultimate ratings outcome if an agreement is announced and the two companies provide more information on financing and strategic direction.
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Use of CreditWatch And Outlooks, Sept. 14, 2009
Ratings List Ratings Affirmed; CreditWatch Action To From Sprint Nextel Corp. Sprint Capital Corp. Nextel Finance Co. Corporate Credit Rating B+/Watch Pos/-- B+/Negative/-- Sprint Nextel Corp. Senior Unsecured BB-/Watch Pos BB- Recovery rating 2 2 Senior Unsecured B+/Watch Pos B+ Recovery rating 3 3 Nextel Communications Inc. Senior Unsecured B+/Watch Pos B+ Recovery rating 3 3 Nextel Systems Corp. Senior Secured BB/Watch Pos BB Recovery rating 1 1 Sprint Capital Corp. Senior Unsecured B+/Watch Pos B+ Recovery rating 3 3 iPCS Inc. Senior Secured B+/Watch Pos B+ Recovery rating 4 4
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at
. All ratings affected by this rating action can be found on Standard & Poor's public Web site at . Use the Ratings search box located in the left column. (New York Ratings Team)