Moody’s Investors Service this afternoon cut its rating on Sprint-Nextel’s (S) overall creditworthiness to B1 from Ba3 because of the company’s decision to make billions of dollars in additional investment over the next several years to build out its 4G wireless network, as disclosed in a meeting with analysts a week ago.
The ratings change, which affects approximately $20 billion of debt, reflects a “failure” on Sprint’s part, writes Moody’s vice president Dennis Saputo.
“Sprint has missed an opportunity to save billions of dollars of capex by failing to reach a win-win arrangement with Clearwire (CLWR). Instead, management will ratchet up the execution risk and go it alone for the 4G upgrade path.”
The capital raise brings risk at the same time that Sprint is facing pressure on margins from rolling out Apple’s (AAPL) iPhone.
The timing of the iPhone launch, coincident with a doubling of capex in 2012, will pressure liquidity and force Sprint to raise more capital. Moody’s anticipates that Sprint will require as much as $6-8 billion through 2013 to fund the network build and meet debt maturities. Leverage will reach approximately 5x (Moody’s adjusted) in 2012 and remain in that range through 2013.
Sprint shares are up 5 cents, or 1.6%, at $2.83.
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