Just when Sprint Nextel
The reason for these downgrades:
- Sprint's four-year, $15 billion commitment to Apple
for the right to sell subsidized iPhones to its subscribers. (Nasdaq: AAPL)
- Sprint's decision to ignore its current 4G network partner and subsidiary Clearwire
and build out a 4G LTE network on its own to the tune of a Moody's estimated $6 billion to $8 billion. (Nasdaq: CLWR)
Credit ratings blues
S&P credit analyst Allyn Arden said: "The downgrade reflects our belief that costs associated with Sprint Nextel's network modernization project and fourth-generation wireless deployment will result in near-term margin compression and higher capital spending."
Moody's, in particular, was miffed at Sprint's going it alone on a network upgrade. "Sprint has missed an opportunity to save billions of dollars of capex by failing to reach a win-win arrangement with Clearwire," said Moody's Senior Vice President Dennis Saputo. He also noted that these were "very aggressive build out targets for a company that has historically failed to realize the full benefits from previous major strategic initiatives."
Sprint, which has $2.3 billion of debt due next March, has available $4 billion of cash, cash equivalents, and short-term investments, and has $1 billion of as-yet undrawn credit. But the company will still need to borrow to pay down its debt, cover the costs of network upgrades, and maybe even bail out Clearwire if it decides to go that route for its 4G LTE network.
To do all that, Sprint announced Friday, it will float two bonds, a $1 billion, 10-year note paying 11.5%, and a seven-year note paying 9%. Nice interest rates for a lender -- if Sprint can stick around long enough to pay it all off.
Can Sprint get to the finish line in this three-legged race? Keep track of Sprint and Clearwire by putting them on My Watchlist.
Fool contributor Dan Radovsky has no financial stake in the above-mentioned companies. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.