Sprint, Qwest Shuffle Balance Sheets As Financing Becomes More Difficult
By SHAWN YOUNG and GREGORY ZUCKERMAN
Staff Reporters of THE WALL STREET JOURNAL
NEW YORK -- Two of the nation's top phone companies, Sprint Corp. and Qwest Communications International Inc., are pushing to shore up their balance sheets in the face of a credit crunch that is making financing harder to come by even for the industry's most established players.
Qwest, a local and long-distance carrier based in Denver, conceded Friday that without the steps it is currently taking to reduce debt and cut expenses, it would be in violation of certain debt covenants by midsummer.
Chairman and Chief Executive Joseph Nacchio said in a conference call that he remains confident that the company won't breach the covenants.
Qwest is in talks with its lenders about the terms under which it will renew credit facilities and is making progress on previously announced plans to sell assets, cut capital spending and shrink the payroll, Mr. Nacchio said. "We are very confident that we will reach an agreement," he said.
The covenant that Qwest would be in danger of violating if it didn't take such preventive measures requires that its debt not be more than 3.75 times earnings before interest, depreciation, taxes and amortization.
Separately, Sprint, based in Westwood, Kan., Friday said it has taken a $1 billion, nine-month loan secured by its phone directory publishing business, which it is considering selling. The $1 billion, Sprint officials said, should meet the company's cash requirements for the entire year. The loan from Citigroup Inc.'s Citibank and Deutsche Bank AG is in addition to Sprint's $5 billion bank line of credit.
The company, which is the parent company of wireless carrier Sprint PCS, is also selling some of its uncollected bills, a move that will let it gain ready access to about $500 million.
Sprint has said it doesn't see a likelihood that it will have to tap its bank lines, as Qwest did last month after it was shut out of the commercial-paper market.
Qwest's move to tap the bank lines deepened the already-severe anxiety of many telecommunications investors and lenders, whose confidence has been battered by questions about accounting practices, the bankruptcy-law filing at Global Crossing Ltd., a prolonged industrywide slump, and heavy debt levels at many carriers, including Sprint and Qwest. Drawing on bank lines is considered a last resort.
Although Sprint's accounting hasn't been a focus of investors' concern, the company's $16.5 billion in debt has sparked worries. Sprint's move to take a loan and consider putting the directory business up for sale seemed to reassure Wall Street stock and bond traders, who saw the moves as giving the company some breathing room to carry on its plan to put the company on firm footing. Sprint also said Friday that it will cut projected capital spending for the year to $6.4 billion from $6.8 billion. Qwest has already cut capital-spending projections several times.
Sprint shares rose 6.1%, or 86 cents, to $14.95 at 4 p.m. Friday in New York Stock Exchange composite trading. The company's benchmark bonds rose, with the yield on the bonds falling. The difference between the yields on Sprint's bonds and comparable Treasurys shrank by almost 0.2 percentage point, a sizable move in the bond market and a sign of some investor enthusiasm, after weeks of hand-wringing about Sprint's future.
Qwest shares were up 28 cents at $8.99 in 4 p.m. NYSE composite trading Friday. |
