Sprint's bonds tumble as Moody's downgrades US wireless major

September 17
9:32 PM 2015

The US wireless major Sprint backed bonds tumbled in the market following the downgrade by Moody's, which sees increasing burden of debt maturities, brutal competitions and lack of operational stability for the third largest US wireless company. 

The downgrade of Sprint has led the bonds backing the American wireless giant tumbled in the US market. Moody's has downgraded Sprint from B1 to B3 following the increased concerns about debt maturities, brutal competition, and operational stability. Senior notes issued by Sprint have also been downgraded from B2 to Caa1. Sprint has taken several initiatives including management changes and funding plans to boost the company's performance, But, Moody's says that these are insufficient to stabilize the company in the US market amid cut-throat competition in the US wireless industry. In addition to senior notes, the debt burden of $12.5bn over next five years will be a testing period for Sprint.

The outlook on Sprint turned negative as the burden of debt maturities will pose a major financial challenge for the wireless telecom company. The situation will further deteriorate from December 2016 onwards as senior notes worth $2billion become due for payment. Thereafter, the annual debt maturities amounting $2.5bn every year for next five years will be a huge burden on the company, according to Moody's.

Moody's remains concerned about the ability of Sprint refinance its large upcoming debt maturities absent from a majority shareholder. In this context, Moody's sees a much stronger commitment from SoftBank to the long-term strategic importance of Sprint in the bank's overall plans. 

Moody's said: "The capital markets will be disinclined to provide funding to Sprint without enhanced collateral in light of its ongoing very large cash needs."

Sprint improved its performance in the first quarter as net additions stood at 675,000 as against the net loss of 220,000 in the previous quarter. It also recorded significant improvement in network performance as Sprint earned 180 RootScore awards in the first half of 2015 when compared with only 27 a year ago. 

Sprint has been improving over the past one year marking an encouraging progress in its turnaround year. The company managed to improve net additions in May and June. It recorded net operating revenues of $8bn, operating income of $501mn and adjusted EBITDA of $2.1bn. Sprint has raised outlook on EBITDA for 2015 from $6.5bn to $7.2bn.

With 57.1million subscribers, Sprint stands at third position in the US wireless industry and it's marginally ahead of T-Mobile, which has 56.8million. Though the growth in net additions is not helping Sprint enhance its top line as revenues fell over seven percent to $8.3bn in the fourth quarter of 2014. The major reason for drop in revenues was mostly shifting of users to discounted service plans. 

Sprint lags behind market rivals Verizon and AT&T in terms of quality and market reach. Sprint has completed 4G LTE network and hoping to improve its subscriber base and revenues in the days to come.

Sprint's benchmark 7.875% notes due for maturity in 2023 were pegged three points lower, at 95.5/96.5. These were traded as low as 95 while its six percent notes are due for maturity in 2022 also eased three points to 88/89. Senior notes are debt securities that take precedence over other unsecured notes and should be repaid in the event of bankruptcy.

Short-term 9.125 percent notes due for maturity in 2018 dropped two points to 105/106 while longer-term 7.625 percent notes due for maturity in 2025 traded in blocks three points lower to 92.5, according to Data Show.

Sprint (Sprint Corporation) is a major global internet carrier. Headquartered in Overland Park, Kansas, Sprint offers wireless voice, messaging and broadband services via its subsidiaries Boost Mobile, Virgin Mobile, and Assurance Wireless brands.

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