Sprint Corp., the No. 3 long-distance carrier, Friday became the latest telecom giant to fall prey to credit-rating downgrades.
Moody’s Investors Service downgraded the long- and short-term debt of Sprint by one notch.
The ratings affect roughly $22 billion of debt and remain investment grade.
Moody’s, the New York-based credit-rating agency, attributed the downgrades to Sprint PCS’ need for heavy capital spending, the company’s ailing long-distance segment, GMG, possible liquidity concerns until the company puts in place a new bank facility and the view that Sprint would not “generate material free cash flow as a percentage of total debt until 2004.”
Moody’s downgraded Sprint Corp. and Sprint Capital Corp. to Baa3 from Baa2 and the company’s short-term ratings to P-3 from P-2. Moody’s also lowered the long-term ratings of the carrier’s subsidiaries by one notch.
Sprint spokesman Mark Bonavia said although the rating downgrades were “disappointing the action won’t impact our operations or financial flexibility.”
Credit-rating agency downgrades can increase a company’s borrowing costs and result in so-called triggers that require accelerated debt payments among other things.
Moody’s said the ratings would continue until Sprint closed its bank facility, improved its cash balance through asset sales or a long-term capital market issuance, closed and funded accounts receivables programs, propped up its long-distance business and raised Sprint PCS into a cash generator.
“Sprint’s Baa3 rating incorporates the expectation that Sprint PCS will continue to grow operating cash flow and that GMG’s performance will stabilize,” the credit-rating agency said Friday. “Even so, Moody’s believes the prospective likelihood of more aggressive wireless competition, the substantial capital expenditure requirements of PCS and further long-distance weakening, particularly in consumer voice, could make it challenging to deliver strong free cash flow over the next two years.”
Moody’s and its credit-rating agency peer Standard & Poor’s Corp. have downgraded the ratings on several telecom giants this year, including AT&T Corp., Qwest Communications International Inc. and WorldCom Inc. S&P rates Sprint BBB-plus with a negative outlook.
