S&P Puts Sprint Nextel on CreditWatch with Negative Implications

­Standard & Poor's Ratings Services said today it placed its 'BB' corporate credit rating for Sprint Nextel, as well as all related issue-level ratings on the company's debt, on CreditWatch with negative implications. This indicates that S&P could either lower or affirm the ratings following the completion of a review.

"The CreditWatch listing is based on the company's weak operating performance through the first nine months of 2009, which has resulted in deteriorating credit measures that may no longer be supportive of the current rating," said Standard & Poor's credit analyst Allyn Arden.

Total debt to last-12-month EBITDA was 4.4x as of Sept. 30, 2009, and is likely to drift higher given current operating performance. Total revenue and EBITDA declined 9% and 17%, respectively, in the third quarter of 2009 year over year, due to ongoing post-paid subscriber losses, which totaled 801,000 and still elevated churn of 2.2% relative to its peer group.

"While Sprint Nextel has made progress on growing its pre-paid customer base and post-paid subscriber trends have shown some modest improvement from previous quarters," said Mr. Arden, "we remain concerned that the company may have difficulty in improving operating trends as industry conditions mature and competition intensifies." Even if post-paid subscriber losses abate and the company continues to right-size its cost structure, EBITDA may not grow sufficiently to materially improve credit measures over the intermediate term, including decreasing leverage to the mid-3x area, which is our threshold for maintaining the current 'BB' rating.

"We expect to review our ratings on Sprint Nextel in the near term and will focus on the company's ability to improve credit measures in 2010," said Mr. Arden. We will also review the company's strategy to improve post-paid subscriber trends and churn, as well as its plans to deploy 4G wireless services via Clearwire. Given characteristics of the current financial profile, a downgrade of more than one notch is unlikely.

Posted to the site on 11th November 2009