UPDATE: S&P Lowers Sprint Corp. (S) to 'B+'; Outlook to Negative

(Updated - February 6, 2015 3:19 PM EST)

Standard & Poor's Ratings Services said today that it lowered its corporate credit rating on Overland Park, Kan.-based wireless carrier Sprint Corp. (NYSE: S) and its subsidiaries to 'B+' from 'BB-'. The rating outlook is negative.

At the same time, we lowered our issue-level ratings on Sprint's guaranteed notes and revolving credit facility to 'BB' (two notches above the corporate credit rating) from 'BB+'. The '1' recovery rating remains unchanged, which indicates our expectation for very high recovery (90%-100%) in the event of payment default.

We also lowered our issue-level ratings on Sprint's EKN credit facility and the debt at the wholly owned Clearwire subsidiary to 'BB' from 'BB+'. The '1' recovery rating remains unchanged, indicating our expectation for very high recovery (90%-100%) in the event of payment default.

In addition, we lowered our issue-level ratings on Sprint's senior unsecured debt issues that are not guaranteed by its subsidiaries to 'B+' from 'BB-'. The '3' recovery rating remains unchanged, and indicates our expectation for meaningful recovery (50%-70%) in the event of payment default.

"The downgrade reflects our expectation that Sprint will be challenged to meaningfully improve its operating and financial performance in 2015 and 2016 because of aggressive price-based competition in the U.S. wireless market, network performance issues, and Sprint's high cost structure, which is particularly important in a maturing wireless industry," said Standard & Poor's credit analyst Allyn Arden.

"The negative outlook reflects our view that poor brand recognition and aggressive competition from other wireless carriers will continue to pressure Sprint's post-paid customer base over the next year," said Mr. Arden. "Additionally, this will likely result in even weaker profitability--even if the company is able to increase post-paid customers--that could exacerbate FOCF deficits over the next year.

We could lower the rating if competitive pressures result in continued elevated churn and pricing pressure, such that Sprint is unable to profitably grow its subscriber base over the next year and leverage rises to the 6.5x area. We could also lower the rating if the company is unable to fund FOCF deficits, which could pressure liquidity, depending on any mitigating actions SoftBank takes to bolster Sprint's liquidity.

We could revise the outlook to stable if Sprint performs better than we assume in our base-case scenario. This includes positive post-paid customer growth and margin expansion. An upgrade is unlikely over the next few years and would require the company to receive additional equity infusions from its parent, SoftBank, to fund FOCF deficits and if leverage were to decline to below 5x on a sustained basis.

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Deutsche Bank Upgrades Westlake Chemical (WLK) to Buy
• Rubric Capital Management Files Definitive Proxy Statement for Xperi (XPER) 2024 Annual Meeting
• Netflix (NFLX) stock is overvalued says Benchmark, sees nearly 30% downside risk