Standard & Poor's Rating Services on Thursday lowered its corporate credit rating on telecommunications company Sprint Nextel Corp. (S), saying that post-paid subscriber losses will continue to pressure the company's revenue and cash flow despite growth in the prepaid business.
S&P lowered its corporate credit rating as well as all issue ratings for Overland Park, Kansas-based Sprint Nextel, including the wireless carrier's senior unsecured debt rating, to 'BB-' from 'BB', or three levels below investment grade.
The ratings agency also said its outlook for Sprint is negative and noted that the outlook incorporates the expectation for some moderation in post-paid subscriber losses, as well as continued growth in the pre-paid business.
The ratings agency also said that it has cut all other ratings on Sprint Nextel and related entities, Sprint Capital and Nextel Communications, one notch and removed them from CreditWatch, where they were placed with negative implications in November 2009 due to Sprint Nextel's weak operating performance that resulted in deteriorating credit measures. S&P's credit analyst Allyn Arden said, "Even if post-paid subscriber losses abate and the company continues to right-size its cost structure, key credit measures including leverage reduction to the mid-3x area, which was our threshold for the previous 'BB' rating, are unlikely to improve in the near term."
Arden added, "Despite growth in the pre-paid segment and some modest improvement in post-paid quarterly subscriber losses, we remain concerned that higher industry penetration levels and increased price-based competition will also hurt Sprint Nextel's operating and financial performance in the near term."
S&P noted that during 2009, Sprint's total revenue and EBITDA declined 9.5% and 16.4%, respectively, year over year, due primarily to a 9.5% decline in post-paid customers.
In early February, Sprint Nextel reported a narrower loss for the fourth quarter compared to the previous year, helped by lower expenses and despite a decline in revenues.
The company's net loss for the fourth quarter narrowed to $980 million or $0.34 per share from net loss of $1.62 billion or $0.57 per share in the same period last year. Net operating revenues for the quarter declined to $7.87 billion from $8.43 billion in the corresponding quarter of the previous year, primarily due to a lower contribution from post-paid wireless service revenues as well as wireline revenues, partially offset by an increase in prepaid wireless service and equipment revenues.
Sprint Nextel's total subscriber loss was 148,000 in the fourth quarter, compared to 1.27 million in the prior-year period, and 545,000 in the previous quarter. In retail post-paid subscribers, net losses in the quarter were 504,000, compared to 1.11 million last year, and 801,000 in the third quarter.
During the fourth quarter, Sprint Nextel completed acquisitions of Virgin Mobile USA, Inc and iPCS, Inc., strengthening its position in the growing prepaid segment and bringing together the Virgin Mobile brand with Sprint's Boost Mobile business.
S closed Thursday's regular trading session at $3.26, down $0.03 or 0.91% on a volume of 35.65 million shares.
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