Standard & Poor's Demoted Sprint's Credit Rating on Tuesday

February 3
5:50 AM 2016

Standard & Poor's downgraded Sprint credit to B on Tuesday. S&P cited a challenging environment for the wireless industry. Morningstar and Moody have also demoted Sprint credit rating to B, high default risk and B3, high credit risk.

Credit analyst at Standard & Poor's Allyn Arden in a statement quoted by Market Watch said, "The downgrade reflects our view that Sprint will be challenged to profitability grow its subscriber base and reverse negative FOCF trends sufficiently to improve its longer-term liquidity position."

Sprint is a provider of wireless services and major global Internet carrier in the United States. The rating was cut in a midst of steep competition and slowing growth in the wireless industry. S&P reduction of an already junk-rated debt making the company had to increase its effort to regain its financial foundation.

The company has been founded for more than 100 years in Kansas as Brown Telephone Company and grew into United Telephone and Electric (UT&E) in 1925. During great depression in 1930's, the company suffered heavy losses because people stopped subscribing for the phone service. In 1938, UT&E was declared into bankruptcy and a new company was formed in its place, which later became United Telecom.

After a series of merger and acquisition for more than 40 years, Sprint was established in 1987. The company started to launch its wireless service in 1993 along with expansion to Canada. However, Sprint kept on struggling to maintain its business, as the company faced continuous wireless technology challenge and financial strain.

Sprint now has $2.3 billion in debt, it must repay or refinance this year, and$12 billion over the next five years. Since 2013, 83% of the company is owned by Japanese telecommunications company SoftBank Group Corp.

On the same day, Morningstar also gave a B rating for Sprint. This rating suggested the company is a high default risk, as reported by Corvus Business. Morningstar also also put a four star rating for the company's stock.

The two low credit ratings from Morningstar and S&P give another huge blow to Sprint. Previously on September 15, as Bloomberg reported, Moody's Investors Service have also demoted its credit rating to B3, meaning a high credit risk.

As a result of reduction in the company's credit rating, Sprint shares fell 9.8% to $2.77 on Tuesday's trade. So far, the company's stock has been declined by 23% this year.

Three of credit rating service has demoted Sprint's credit rating. Morningstar and S&P gives B, a high default risk; while Moody's gave B3, high credit risk. This will be a setback for the company's effort to strengthen its financial infrastructure.

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