Ratings firm questions Sprint’s long-term solvency
Sprint’s stock took a hit Wednesday following a move by Moody’s Investors Service in downgrading several of the wireless carrier’s operating entities.
In a research note, Moody’s downgraded Sprint’s corporate family rating from “B1” to “B3,” its probability of default rating from “B1-PD” to “B3-PD,” its senior unsecured rating from “B2” to “Caa1” and its speculative grade liquidity rating from “SGL-3” to “SGL-4.” All the ratings received a “negative outlook.”
The ratings firm said the moves are based on growing concern regarding Sprint’s long-term fiscal solvency.
“Today’s rating action reflects Moody’s view that the numerous operational and network initiatives, management changes, and funding plans recently announced by Sprint and its parent company and majority shareholder, SoftBank Group … will be insufficient to stabilize Sprint’s operations in the next few years,” Moody’s noted. “The brutal competition now playing out in the U.S. wireless industry will pressure the financial performance of even the strongest operators. Consequently, we expect Sprint’s cash consumption to remain high, liquidity to remain weak and leverage to increase.”
Moody’s also expressed concern regarding Sprint’s possible participation in the Federal Communications Commission’s scheduled 600 MHz incentive auction set for March.
“In the past, Sprint has expressed an interest in this type of spectrum in order to complement its holdings of mid-band and high-band spectrum,” Moody’s noted. “Recently, it has been less clear on whether it would seek to augment its relatively shallow low-band holdings. We believe that a balanced mix of spectrum is critical for operators to compete effectively and profitably in the U.S. over the long-term.”
Sprint has to this point been somewhat vague on its 600 MHz auction plans, with CEO Marcelo Claure telling an audience at this year’s Competitive Carriers Association Global Expo event that the carrier was “to be determined” on its participation plans. Claure stated that the carrier would need to look at final rule-making before making a decision, and that the record haul of the recent Auction 97 proceeding, which Sprint decided to sit out, had caused some concern regarding the potential investment needed to procure what is seen as even more valuable spectrum.
Moody’s said Sprint’s spectrum future could include selling off some of its robust 2.5 GHz spectrum holdings in order to help fund acquisition of lower-band spectrum. Sprint’s 2.5 GHz spectrum holdings have been central to its latest network densification plans, though the carrier has also been rumored to be looking to sell off some its extensive holdings.
The news sent Sprint’s stock down as much as 5% on Wednesday, before regaining some of that loss by day’s end to close at $4.69 per share.
Sprint’s stock has been on a roller coaster this summer, having plunged to a new 52-week low of $3.10 in late July following relatively robust quarterly results from rivals Verizon Wireless, AT&T Mobility and T-Mobile US. Investors quickly warmed back up to Sprint’s stock in mid-August following further investments into the carrier by parent company SoftBank.
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