Bonds backing Sprint tumbled this afternoon following a double-cut downgrade by Moody's on account of concerns about the wireless giant's looming debt maturities, "brutal" competition, and operational stability. The company was downgraded to B3, from B1, and the senior notes were cut to Caa1, from B2.
The company's benchmark 7.875% notes due 2023 were pegged three points lower, at 95.5/96.5, after trading as low as 95, while its 6% notes due 2022 also moved three points lower, to 88/89, according to sources and trade reports. Short-tenor 9.125% notes due 2018 shed two points, to 105/106, while longer-term 7.625% notes due 2025 changed hands in blocks three points lower, at 92.5, data show.
Moody's said the numerous operational initiatives, management changes, and funding plans "will be insufficient to stabilize Sprint's operations in the next few years," and that the "brutal competition now playing out" in the U.S. wireless industry will pressure the financial performance.
Moody's further stated the following: "We remain concerned about the ability of Sprint to refinance its large upcoming debt maturities absent a much stronger commitment from [majority shareholder] SoftBank to the long-term strategic importance of Sprint in SoftBank's overall plans," and that "the capital markets will be disinclined to provide funding to Sprint without enhanced collateral in light of its ongoing very large cash needs."
Moody's left the outlook as negative and highlighted that debt maturities ramp up significantly starting in December 2016 when $2 billion of senior notes mature. Thereafter, the annual debt maturities for the next five years are roughly $2.5 billion per year, according to Moody's.
Sprint last approached the high-yield market in February, pricing $1.5 billion of the 7.625% notes to support general corporate purposes. Pricing on the non-call-life senior notes was par, the middle of talk, via a huge Citi-led bookrunner team. – Matt Fuller
Check out www.highyieldbond.com, a free site powered by LCD, for more HY news and analysis.