Fitch Ratings Affirms Sprint; Outlook Remains Stable.

Business Editors

CHICAGO--(BUSINESS WIRE)--March 12, 2004

Fitch Ratings has affirmed Sprint Corporation's and Sprint Capital Corporation's (Sprint) senior unsecured rating at 'BBB'. The equity unit's 'BBB' rating is also affirmed by Fitch. The Rating Outlook for all of the company's ratings remains Stable. As of Dec. 31, 2003, Sprint had approximately $19.2 billion of debt outstanding including its Equity Units.

Fitch's rating recognizes Sprint's revenue and asset diversity, the strong improvement of free cash flow generation during 2003, reduced debt levels and a solid liquidity profile. During 2003, Sprint generated approximately $2.3 billion of free cash flow, a substantial increase relative to 2002 levels, primarily driven by increased EBITDA growth derived from the PCS Group coupled with reduced capital expenditures. Capitalizing on its free cash flow growth and the sale of its directory publishing business earlier in 2003, Sprint was able to reduce its year end gross debt level by $2.9 billion and its net debt level by $4.2 billion, relative to year end 2002 levels.

The ratings reflect Fitch's expectations that Sprint will continue to generate material amounts of free cash flow and reduce debt levels during 2004. Fitch expects Sprint to generate $1.8 billion of free cash flow during 2004. Free cash flow will be impacted by lower EBITDA generated by the FON Group as well as a higher level of capital expenditures within the PCS Group. These effects will be partially offset by EBITDA growth produced by the PCS Group. Additionally Fitch has incorporated a higher dividend payout, connected to the recombination of its tracking stocks, into its free cash flow expectations.

Sprint continues to make strengthening its balance sheet and improving its financial flexibility a top priority. As of the end of 2003, Sprint's debt to EBITDA metric (including the Equity Units) improved to 2.4 times (x) versus 3.0x at the end of 2002. Providing the equity units 80% equity credit, the company's adjusted debt to EBITDA metric at the end of 2003 was 2.2x, and 2.8x at the end of 2002. Sprint has embarked on a plan to reduce its net debt levels by $8 billion relative to year-end 2002 levels, to $13 billion by the end of 2004. In addition to expected free cash flow generation, net debt levels will be positively impacted during 2004 by the receipt of $1.725 billion of proceeds related to the sale of equity to the holders of the equity units. Fitch expects credit metrics to improve during 2004, with year-end debt to EBITDA metric ranging between 2.3x and 2.2x.

Sprint's ratings are further supported by a solid liquidity profile that includes $2.4 billion of cash on hand as of the end of 2003. Adding to Sprint's liquidity is its $1 billion 364-day revolver that was not utilized as of the end of 2003. The credit facility is unsecured and is structured with a one-year $1 billion term out option. Additional sources of liquidity include the accounts receivable securitization program at the PCS Group and FON Group that as of the end of 2003 provided a collective $691 million of funding availability. As of the end of 2003, Sprint had sufficient cash on hand to satisfy scheduled maturities through 2005. Specifically, scheduled maturities in 2004 are $594 million and approximately $1.3 billion in 2005.

In Fitch's opinion, Sprint's focus on debt reduction and increased financial flexibility is appropriate given the level of business risk associated with the company's PCS Group and Global Markets Group. The PCS Group has clearly overcome the challenges in early 2003 stemming from its Clear Pay initiative. The company's strategy continues to shift to profitable subscriber growth and cost reduction. But the PCS Group did lose market share of gross additions during 2003. Fitch expects the company to recapture share during 2004 by focusing on data products, improved value propositions, distribution, and differentiated hand set devices. A key risk to the credit profile will be Sprint's ability to take market share while maintaining its ARPU given the competitive environment. The start of industry consolidation is positive, however Fitch does not expect the intensity of pricing competition to ease during 2004 because many of the largest markets will continue to have many operators (both national and regional) vying for subscriber market share. Moreover, Fitch expects that pricing competition may further escalate in the near term as operators try to gain market share during the period of closing and integration the CNG and AWE merger.

In Fitch's opinion the effects of wireless number portability may lead to higher subscriber churn levels for the PCS Group as well as the wireless sector in 2004. Fitch anticipates that the company will take steps to mute the pressure on churn by motivating its subscribers to increase the tenor of the contract with Sprint. However, the company will need to strike a balance between increasing contract duration and elevated handset subsidies to control customer acquisition costs.

Fitch expects the main issues currently impacting the Global Markets Group will persist into 2004 and anticipates only a modest improvement in the rate of revenue declines. However the company made significant progress improving its cost structure and reported a 300 basis-point year-over-year increase in EBITDA margin for the year-ended 2003. The improved margin coupled with reduced capital expenditures yielded a large increase in the cash flow (measured by EBITDA less Capex) generated by the Global Markets Group. Cash flow generation during 2004 will be pressured by lower EBITDA and higher capital expenditures.

From Fitch's perspective, the recombination of the tracking stocks does not change the company's fundamental credit profile. Assuming that Sprint's board of directors maintains the current dividend rate, the recombination will increase the capital required to support the annual dividend by approximately $260 million. While the increase in dividend is not a positive event for fixed income investors, from Fitch's view the company has sufficient liquidity and financial flexibility to accommodate the increased dividend without materially affecting credit protection metrics or adding any pressure to its current ratings.

Fitch's rating assumes that the PCS affiliates will continue to resolve their balance sheet issues through debt restructurings without the active involvement of Sprint.