Sprint Nextel Corporation (NYSE: S) just can’t catch a break. Even getting the iPhone from Apple Inc. (NASDAQ: AAPL) is going to be a real problem for Sprint. Dan Hesse went out of his way to claim that iPhone users would in fact be among the wireless carrier’s most profitable customers after reports were out that the company would lose money on them. The problem is that the company is going to need to raise billions to help finance the commitment to Apple to buy the phones and for its aggressive network recalibration.
Today’s news is a Moody’s debt downgrade, in part due to the network buildout and in part due to its financial commitments with Clearwire Corporation (NASDAQ: CLWR) weighing on its cash. By not coming to a win-win relationship with Clearwire, Sprint’s capital is more or less stretched. The downgrade was down to “B1” from “Ba3.” This means that the rating is getting further and further into junk-territory. Moody’s also left Sprint on review for potentially further downgrade measures.
The downgrade affects close to $20 billion in debt and it looks as though the excess needs are going to come from roughly a $10 billion capex for the network. As far as new capital needed, Moody’s suggests that Spring will need about $6 billion to $8 billion through 2013. That covers the buildout and dent maturities.
The talk is that Spring has committed for about 31.5 million iPhones and this is expected to push out profitability to 2014 or beyond.
What is amazing is that Sprint shares are actually up marginally today with the broad market. It turns out that the debtholders must have already treated the news as a known event. Sprint shares are up 0.9% at $2.80 and the 52-week range is $2.10 to $6.45.
JON C. OGG
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