Sprint Shopping $2 Bln Bond Despite Credit Concerns
07 Mar 08:00
(This article was originally published Wednesday)
By John Dooley
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Even as it continued to draw fire from some credit
analysts Wednesday, Sprint Corp. firmed up plans to raise an additional $2
billion in the bond market.
Traders said the company, which has been plagued by liquidity concerns
recently, was in the market with a $2 billion bond offering that is expected to
price next week. The bonds, which are being issued through the company's Sprint
Capital Corp. unit, are being brought to market via Deutsche Banc Alex. Brown,
Salomon Smith Barney and UBS Warburg. The deal is expected to include 10-year
and 30-year maturities.
Prior to news of the new bond offering, independent credit research firm
Gimme Credit had raised questions about Sprint's credit quality and its
recently filed annual report.
Carol Levenson, director of research at Gimme Credit, said filings made by
Sprint this week to the Securities and Exchange Commission have amplified her
concerns about the amount Sprint can borrow before it violates the leverage
covenant of its bank agreements and the company's mounting short-term
obligations.
According to Sprint's 10K, filed Monday, the company's "borrowing cushion"
had shrunk from $7.5 billion at the end of the third quarter to $3.1 billion,
short of a $4 billion figure previewed in a 10Q form filed in September,
Levenson said. Then, on Tuesday, the company filed an amended 10-K
"resurrecting the $4 billion cushion," Levenson said.
In an interview, Levenson said the discrepancy may have resulted from a
typographical error or differing methods of accounting for hybrid securities
that can be converted into equity. In light of recent concerns about Sprint's
access to capital, information about borrowing capacity may have been among the
most important in the report, Levenson said, and noted that she was surprised
that the market hasn't reacted negatively.
A Sprint spokesman did not immediately return calls.
On Wednesday, Sprint bonds due 2011 were quoted at a yield margin of about
3.45 percentage points over Treasurys, about 0.10 percentage point wider than
levels at the start of the week, traders said.
Shares in the company's PCS business (PCS) and local services FON Group (FON)
both moved higher Wednesday after the company reiterated 2002 financial targets
for both businesses. Shares in Sprint Corp. PCS shares closed up $1.92 at
$11.68. Shares in the FON Group business closed up $1.27 at $16.10.
Levenson also highlighted concerns about Sprint's new $1 billion secured bank
loan, announced last Friday, and the company's disclosure that it may have to
accelerate $250 million to $1.1 billion of debt repayment if its credit ratings
fall below investment grade.
Sprint Corp. unsecured debt is rated Baa1 and on review for a downgrade at
Moody's Investors Service. At Standard & Poor's, the debt is rated
triple-B-plus and "on negative watch."
Others Say Sprint's Moves Are `Proactive'
Despite skittishness in the bond market that has made financing harder to
come by for even the most established phone companies, other analysts said they
were not as alarmed by Sprint's recent disclosures.
Robert Schiffman, telecommunications bond analyst at Credit Suisse First
Boston, recently upgraded his recommendation on Sprint bonds to "hold" from
"unattractive" based on the company's move to arrange a new $1.1 billion credit
facility, reduce cash needs, and consider the possible sale of its directory
publishing business. The company has also announced plans to raise funds
through PCS accounts receivable financing.
"The market is clearly looking for action from companies right now and Sprint
has made some proactive moves," Schiffman said.
"By successfully issuing termdebt, Sprint will dramatically reduce the
market's short term liquidity fears," Schiffman added.
Stephen Mahoney, manager of about $4 billion in corporate debt at Glenmede
Trust Co. in Philadelphia, said his primary concerns about Sprint are related
to its credit rating.
"Sprint's problems can only get bigger if it gets closer to a non-investment
grade credit rating," Mahoney said.
Mahoney said Sprint's new bonds will likely offer investors a significantly
higher yield than its outstanding bonds to compensate for the perception of
increased risk.
-By John Dooley, Dow Jones Newswires; 201 938-2078,
john.dooley@dowjones.com
(END) DOW JONES NEWS 03-07-02
08:00 AM |
