Moody's Raises Outlook on Sprint Corp. (S) to Stable; Speculative Grade Liquidity Rating Raised

Moody's Investors Service, ("Moody's") has affirmed the B3 corporate family rating (CFR) of Sprint Corporation ("Sprint")(NYSE: S), upgraded Sprint's speculative grade liquidity (SGL) rating to SGL-3 from SGL-4 and changed Sprint's ratings outlook to stable from negative. Moody's has also affirmed Sprint's B3-PD probability of default rating, Ba3 senior guaranteed rating, B1 junior guaranteed rating and Caa1 senior unsecured rating. The stable outlook is the result of Sprint's improved liquidity and the stabilization of wireless subscribers and service revenues over the past several quarters.

Affirmations:

..Issuer: Clearwire Communications LLC

....Senior Secured Regular Bond/Debenture, Affirmed Ba3 (LGD1)

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD3)

Outlook Actions:

..Issuer: Clearwire Communications LLC

....Outlook, Changed To Stable From Negative

..Issuer: Sprint Capital Corporation

....Gtd Senior Unsecured Medium-Term Note Program, Affirmed (P)Caa1

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

Outlook Actions:

..Issuer: Sprint Capital Corporation

....Outlook, Changed To Stable From Negative

..Issuer: Sprint Communications, Inc.

....Gtd Revolving Credit Facility, Affirmed Ba3 (LGD2)

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD2)

....Senior Unsecured Regular Bond/Debenture, Affirmed B1 (LGD2)

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

Outlook Actions:

..Issuer: Sprint Communications, Inc.

....Outlook, Changed To Stable From Negative

..Issuer: Sprint Corporation

.... Probability of Default Rating, Affirmed B3-PD

.... Corporate Family Rating, Affirmed B3

....Gtd Senior Unsecured Shelf, Affirmed (P)Caa1

....Gtd Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

Upgrades:

..Issuer: Sprint Corporation

.... Speculative Grade Liquidity Rating, Upgraded to SGL-3 from SGL-4

Outlook Actions:

..Issuer: Sprint Corporation

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Sprint's B3 rating reflects its high leverage of approximately 6x (Moody's adjusted) as of June 30, 2016, intense competitive challenges, our projection for negative free cash flow (excluding cash realized from securitizations) through at least 2017 and Sprint's need for additional capital to fund its network modernization and refinance upcoming sizable maturities. The rating incorporates a one notch lift due to our expectation that Sprint's parent company and majority shareholder, SoftBank Group Corp. ("SoftBank", Ba1 CFR, stable outlook) will seek to retain the viability of Sprint as a going concern. Moody's views Softbank's implicit support as the key factor in Sprint's ability to accomplish its improved liquidity profile and, as such, views these actions as supportive of the one-notch implicit support uplift to Sprint's rating. The rating also recognizes Sprint's improving operating performance in its postpaid segment, its ongoing cost reduction initiatives, and its valuable spectrum assets.

The stable outlook reflects our view that Sprint's liquidity position can address near term maturities and the cash needed to fund its business for the next 18 months. The outlook also reflects Sprint's improved revenue, churn and subscriber growth trend of the past three quarters. Sprint's liquidity has improved, but a large portion of its available committed borrowing capacity is short term in nature and Sprint must maintain at least 18 months of committed, general purpose liquidity to sustain the stable outlook.

Over the past two to three quarters, Sprint has improved its available liquidity through a series of collateralized debt transactions and a new unsecured financing facility. As of June 30, Sprint's total committed general purpose liquidity was approximately $11 billion (including $5 billion in cash and cash equivalents) compared to $5 billion in current maturities. Sprint has also addressed a large portion of the working capital deficit associated with handset financing through securitizations and sale-leaseback transactions. Although these facilities have near term maturities and amortize rapidly, they help bridge the working capital deficit that exists as device financing penetration rises faster than customer billings. Further, Moody's expects Sprint to proactively address the February 2018 maturity of its existing, $3.3b revolving credit facility and the October 2017 maturity of the recently added undrawn $2.5b unsecured guaranteed financing facility. A failure to extend the maturities of these facilities or replace them with equivalent or larger instruments or cash at least 12 months prior to their respective maturities would likely result in a negative rating action.

Operationally, Sprint has also made progress by stabilizing its subscriber base and service revenues despite competitive price actions and promotional activity. Postpaid service revenues have largely stabilized, with a quarterly sequential decline of just 0.3% for the most recent quarter versus a 1.7% decline in the same quarter of fiscal 2015. This deceleration of service revenue weakness is a favorable development given the industry-wide adoption of device financing which results in a shift from service to equipment revenue or billings. Sprint's network plan continues to evolve and the company has activated the first phases of its 2.5GHz spectrum holdings. Churn has declined, which we believe is at least partly associated with improved network performance combined with the industry-wide benefit of device financing and longer device useful lives. Lastly, profitability has risen as the early benefits of Sprint's planned $2 billion to $2.5 billion in annualized cost reductions have begun to flow through the income statement.

Despite all the improvements discussed above, Sprint remains in a fragile state of recovery, having stabilized the business and balance sheet but not yet transitioned to a self-funding business model. Many hurdles remain, and Sprint must continue to execute crisply while simultaneously optimizing its cost structure, aggressively deploying new network capacity and continuing to address its meaningful maturity profile. Moody's believes Sprint's business, operational and financial risk remain in line with its B3 rating.

Moody's has affirmed the Ba3 senior guaranteed, B1 junior guaranteed and Caa1 unsecured ratings for Sprint's existing classes of debt, based upon on Sprint's existing capital structure and the size and priority of claims of each creditor class. However, Moody's recognizes that the notching of these ratings relative to the B3 CFR could be more volatile than the CFR itself due to Sprint's growing level of collateralized or structurally senior borrowing. In particular, the B1 rated junior guaranteed debt class is likely to be the most sensitive to changes in capital structure. Moody's estimates that Sprint has limited secured borrowing capacity under the terms which govern its existing revolving credit facility. However, absent these restrictions Sprint has more than $8 billion of secured debt capacity. Additionally, Sprint has announced plans to borrow against a portion of its spectrum assets, which could further impact the notching of existing debt.

Moody's could upgrade Sprint's ratings if leverage is sustained below 5.5x and service revenues, churn and subscriber levels remain stable or improve. In addition, an upgrade would be predicated upon Sprint maintaining committed, general purpose liquidity sufficient to address at least 18 months of total cash needs, including capital expenditures and debt maturities. Lastly, Moody's would need to have visibility into Sprint's path to a self-funding business to consider an upgrade. Moody's could downgrade Sprint's ratings if leverage is sustained above 6.5x (Moody's adjusted) or if the company's liquidity is not sufficient to address 18 months of total cash needs. A downgrade could also result from a deterioration in Sprint's operating performance, which could include rising churn, weak subscriber trends or if Sprint introduces irrational price plans. Also, if Moody's believes that SoftBank's commitment to Sprint deteriorates, a rating downgrade is likely.

The principal methodology used in these ratings was Global Telecommunications Industry published in December 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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