Fitch Ratings maintains the following ratings for Sprint Nextel
Corporation (Sprint Nextel) and its subsidiaries on Rating Watch
--Issuer Default Rating (IDR) 'B+';
--Senior unsecured credit facility 'BB/RR2';
--Junior guaranteed unsecured notes 'BB/RR2';
--Senior unsecured notes 'B+/RR4'.
Sprint Capital Corporation
Nextel Communications Inc. (Nextel)
Fitch has maintained the Rating Watch Positive after Sprint Nextel
entered into a definitive agreement to acquire the approximate 50% stake
in Clearwire Corp. it currently does not own for $2.2 billion. Sprint
Nextel will also provide a loan of up to $800 million in interim
financing in the form of exchangeable notes, which will be exchangeable
under certain conditions for Clearwire class B common stock. Under the
financing agreement, Sprint has agreed to purchase $80 million of
exchangeable notes per month for up to 10 months beginning in January
2013. The transaction will require regulatory approval and a majority of
non-Sprint owned Clearwire shares. The Clearwire acquisition, which is
contingent on the Softbank transaction finalizing, is expected to close
mid-2013 at approximately the same time as Softbank.
Fitch believes Clearwire's spectrum assets are integral to Sprint
Nextel's long-term LTE plans by solving the need for high capacity
spectrum in its urban cores. This strengthens Sprint's competitive
position and ability to differentiate unlimited wireless broadband
offerings from its national peers. As such, Fitch views this
strategically as a positive event since the acquisition would give
Sprint Nextel complete control of Clearwire's spectrum and allow Sprint
to fully integrate Clearwire assets into its network. Thus the
transaction eliminates future equity contributions, reduces inefficient
operating expenses and facilitates the execution of its strategic plans.
From a credit profile perspective, pro forma leverage would increase to
over 5x. Given the increase in leverage, the prospects for a ratings
upgrade to 'BB-' once the two acquisitions close have potentially
diminished. Sprint's execution on stated network objectives and whether
the company can demonstrate further operational and financial
improvements in the coming quarters despite the increased competitive
intensity has elevated importance. Material uncertainty also still
exists with Sprint's post-transaction capital structure plans and uses
for Softbank's capital infusion which will be a key factor in the final
Uncertainty exists whether non-Sprint Clearwire shareholders will
approve the transaction. Fitch believes Clearwire's stand-alone
prospects were bleak due to its constrained liquidity, limited access to
new capital and inability to attract major new customers. Over time, as
consolidation has removed potential whlesale partners and operators
have become more efficient with spectrum assets through acquisition and
swaps, the industry has obviated the need for a wholesale operator.
Clearwire's lack of additional strategic agreements with other
operators, limited market access and substantial funding gap left the
company heavily reliant on Sprint Nextel for further funding.
Absent Clearwire shareholder approval, a financial restructuring of
Clearwire is quite possible. This would have significant implications
and risks for Clearwire's stakeholders with an uncertain outcome. In
addition, a financial restructuring would introduce material uncertainty
with Sprint's longer-term network and spectrum plans. Clearwire was
expected to begin supplying Sprint with hotspot capacity for its LTE
network beginning in mid-2013.
Fitch now views Sprint Nextel's liquidity as strong despite the
significant cash requirements expected through at least 2013. In
addition to the expected $8 billion from Softbank, Sprint Nextel's
liquidity position is supported by $6.3 billion of cash and $1.2 billion
borrowing capacity under its $2.2 billion revolving credit agreement at
the end of the third quarter 2012. Fitch expects Sprint Nextel will
consider parameters for a new facility in early 2013 given the October
2013 maturity. Approximately $423 million is also available through May
31, 2013 under the first tranche of the secured equipment credit
facility. The incremental Softbank investment has afforded Sprint Nextel
considerable financial flexibility to address refinancing requirements
and strategic investments which the company has demonstrated in the past
Sprint has significantly improved its maturity profile as a result of
debt issuances in the past year and reduced refinancing risk in the
midst of a capital intensive period. In mid-2011, Sprint had $8 billion
in debt maturities during the next four years, including $2.3 billion in
2012, $1.8 billion in 2013, and $1.4 billion in 2014. For the third
quarter 2012, pro forma for the November $2.3 billion debt issuance,
Sprint has approximately $1 billion in debt maturities during the next
three years including $317 million in 2013, $198 million in 2014 and
$500 million in 2015.
WHAT COULD TRIGGER A RATING ACTION
Negative: The ratings are on a Rating Watch Positive. As a result,
Fitch's sensitivities do not currently anticipate developments with a
material likelihood, individually or collectively, of leading to a
Positive: The ratings are on a Rating Watch Positive. Future
developments that may, individually or collectively lead to positive
rating action include:
--Completion of Softbank merger and expected uses for the $8 billion
--Plans for post-close capital structure.
--The degree of operational, strategic, and legal linkage between
Softbank and Sprint Nextel.
--Trends associated with operating performance for postpaid subscribers,
churn, and ARPU.
--Sprint Nextel's continued progress with network modernization plans
including cost improvements and LTE network deployment.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Global Telecom Companies: Sector Credit Factors' (Aug. 9,
Corporate Rating Methodology
Rating Telecom Companies
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