(The following statement was released by the rating agency)
Oct 11 - Overview-- Sprint Nextel
has announced it is in talks with Japan's SoftbankCorp.
(BBB/Stable/--), which is seeking to buy all or part of SprintNextel.
-- 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 wewould attribute to the higher-rated Softbank.
Rating ActionOn Oct. 11, 2012, Standard & Poor's Ratings Services placed its 'B+' corporatecredit rating, and all other ratings, on Overland Park, Kan.-based wirelessservice provider Sprint Nextel Corp. on CreditWatch with positiveimplications. The CreditWatch placement follows Sprint Nextel's announcementthat it is in talks with Japan's Softbank Corp. (BBB/Stable/--), which isseeking to buy all or part of Sprint Nextel.
The CreditWatch placement reflects the possibility that we could raise ourratings on Sprint Nextel if Softbank is successful in its negotiations toacquire a large stake in the company.
An important factor in our analysis would be the degree of support we wouldattribute to the higher-rated Softbank. While we would not expect to equalizethe ratings on Sprint Nextel with those on Softbank in the absence of debtguarantees, it is possible that we might impute some degree of support in theratings, which could also lead to a higher rating on Sprint Nextel than itwould have on a stand-alone basis. Key determinants in this part of ouranalysis would include an assessment of Softbank's longer-term strategies inthe U.S. market, any degree of integration with Softbank's Japanese wirelessbusiness, as well as the percent ownership acquired.
While there is no information on how such a transaction would be financed, webelieve that an acquisition could also lead to improvement in Sprint Nextel'sfinancial risk profile, which we currently view as "highly leveraged," giventhe company's elevated debt to EBITDA of about 5.8x as of June 30, 2012, ourexpectation for material free operating cash flow deficits over the nextcouple of years, and "less than adequate" liquidity.
Preliminarily, we do not believe a potential acquisition would offermeaningful synergies since the two companies operate in different geographicmarkets, nor do we expect any direct benefits to the current business riskassessment, which we currently view as "fair." Nevertheless, Sprint Nextelwould likely benefit from having a parent company with greater financialresources to help fund its network upgrade and accelerate its rollout offourth-generation (4G) services under the Long Term Evolution (LTE) standard.
Sprint Nextel's capital structure consists of about $21 billion of debtoutstanding 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 thediscussions between the two companies. We could raise or affirm the ratings onSprint Nextel if an acquisition or large investment by Softbank is ultimatelyconsummated. We would expect to provide more clarity on the ultimate ratingsoutcome if an agreement is announced and the two companies provide moreinformation on financing and strategic direction.
Related Criteria And Research
-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
-- Methodology And Assumptions: Liquidity Descriptors For GlobalCorporate Issuers, Sept. 28, 2011
-- Use of CreditWatch And Outlooks, Sept. 14, 2009
Ratings ListRatings Affirmed; CreditWatch ActionTo FromSprint 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 2Senior Unsecured B+/Watch Pos B+Recovery rating 3 3Nextel Communications Inc.Senior Unsecured B+/Watch Pos B+Recovery rating 3 3Nextel Systems Corp.Senior Secured BB/Watch Pos BBRecovery rating 1 1Sprint Capital Corp.Senior Unsecured B+/Watch Pos B+Recovery rating 3 3iPCS Inc.Senior Secured B+/Watch Pos B+Recovery rating 4 4
Complete ratings information is available to subscribers of RatingsDirect onthe Global Credit Portal at
. All ratings affectedby this rating action can be found on Standard & Poor's public Web site at. Use the Ratings search box located in the leftcolumn.(New York Ratings Team)