Moody's Downgrades Sprint Nextel's (S) Corporate Family Rating; Outlook Negative

November 20, 2009 2:51 PM EST

Moody's Investors Service (NYSE: MCO) announced it has downgraded Sprint Nextel's (NYSE: S) Corporate Family Rating to Ba2 from Ba1. Moody's believes the company's ability to slow the deterioration of its earnings is taking longer than originally anticipated. Consequently, the company's leverage is likely to deteriorate before stabilizing.

The outlook for Sprint Nextel's ratings is negative.

Moody's analyst sees continuing challenges in stabilizing its post-paid wireless operations amid intense competition and slowing industry growth.

Moody's affirmed the Baa2 rating of the company's bank credit facility due to the full repayment of revolving loans recently announced by the company.

Moody's also affirmed the Ba2 rating of Nextel Communications's (Nextel) debt, reflecting the structural seniority of these notes relative to other unsecured debt,

The Company has implemented cost reductions and efficiency gains, including a significantly reduced headcount, coupled with very low capital investment has allowed the company to increase its cash balances by over $2.2 billion while keeping debt levels flat so far this year. However, we expect liquidity to deteriorate from very strong levels as the company funds recently announced strategic initiatives, including its recently announced $1.2 billion investment in Clearwire (Nasdaq: CLWR) and the acquisitions of Virgin Mobile and iPCS, and free cash flow generation becomes more difficult.

"The continued negative outlook for Sprint's ratings reflects Moody's concerns about Sprint's ability to stabilize its operating performance and earnings in the face of a maturing market and fierce competition,
especially from AT&T (NYSE: T) and Verizon (NYSE: VZ)", said Moody's analyst.

Moody's has affirmed Sprint Nextel's SGL-1 speculative grade liquidity rating reflecting our expectation that the company will sustain very good liquidity over the next twelve months, proforma for the three
transactions noted above which are expected to require about $2.0 billion of cash.

Rating Changes include the following:

Issuer: Sprint Nextel Corporation
Corporate Family Rating, Downgraded to Ba2 from Ba1
Probability of Default Rating, Downgraded to Ba2 from Ba1
Speculative Grade Liquidity Rating, Affirmed at SGL-1
Senior Unsecured Bank Credit Facility, Affirmed Baa2, LGD2 - 12%
Senior Unsecured Regular Bond/Debenture, Downgraded to Ba3, LGD5 -
74%, from Ba2, LGD5 - 78%

Issuer: NEXTEL Communications, Inc.
Senior Unsecured Regular Bond/Debenture, Affirmed Ba2, LGD3 - 39%

Issuer: Sprint Capital Corporation
Senior Unsecured Regular Bond/Debenture, Downgraded to Ba3, LGD5 -
74%, from Ba2, LGD5 - 78%

[SM]

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