Fitch Rates Sprint Nextel Credit Facility with Negative Outlook

Fitch Ratings has assigned a 'BB' rating with a Negative Rating Outlook to the new proposed unsecured $2.25 billion revolving credit facility at Sprint Nextel. The credit facility will mature in 2013. Concurrently, Fitch will withdraw the ratings on Sprint Nextel's $4.5 billion unsecured revolving credit facility at the time of closing.

Sprint Nextel's new $2.25 billion three and one-half year unsecured revolving credit facility will replace the $4.5 billion revolving facility that was maturing in December 2010. The new facility reduces the available borrowing capacity under the revolver to approximately $550 million, which includes recent reductions to the Federal Communications Commission (FCC) letter of credit (LOC) versus $2.7 billion at the end of 2009. Sprint's sizable cash position of $3.9 billion, expected free cash generation of at least $1.5 billion in 2010 and the extended maturity of the credit facility offsets risks with the reduced revolver availability. In addition, as Sprint Nextel continues its progress on spectrum rebanding, Fitch expects the $1.7 billion FCC LOC to decrease, on average, by approximately $100 million per quarter during 2010. Consequently, revolver availability should increase in the coming quarters and into 2011.

The new facility contains a slightly relaxed total leverage covenant of 4.5 times (x) that steps down in .25x increments to 4x by the end of 2012. Pro forma for the new covenant, Sprint Nextel has an approximate 21% cushion against further EBITDA loss compared with 17% at the end of 2009. Fitch also expects Sprint Nextel to use available cash to pay down $2.45 billion of debt maturities within the coming year. Consequently, while credit metrics will likely weaken slightly during the first half of 2010, the company should be able to maintain adequate cushion over the rating horizon.

The Negative Outlook reflects Fitch's concern based on past operating results, issuer financial trends, industry risk factors, the location of rating within its rating category and uncertainty over future operating trends. Fitch currently expects leverage (debt-to-EBITDA) increasing to 3.5x before stabilizing in the second half of 2010. Failure to substantially improve subscriber trends and stabilize financial performance during 2010 would result in further assessments and potential rating actions.