Fitch Ratings Upgrades Sprint & Nextel Ratings to 'BBB+'.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has upgraded the ratings on Nextel Communications Inc.'s (Nextel) senior unsecured notes to 'BBB+' from 'BB+' and Nextel Finance Company's bank facility to 'BBB+' from 'BBB-', as well as the following: -- Sprint Corporation senior unsecured notes to 'BBB+' from 'BBB'; -- Sprint Capital Corporation senior unsecured notes to 'BBB+' from 'BBB'. Nextel's preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. rating is withdrawn due to its conversion into shares of common stock. The Rating Outlook is Stable. The rating actions conclude Fitch's rating review that began in December 2004 following Sprint and Nextel's announcement of a merger of equals. The transaction received approval by the Federal Communications Commission Federal Communications Commission (FCC), independent executive agency of the U.S. government established in 1934 to regulate interstate and foreign communications in the public interest. (FCC (1) (Federal Communications Commission, Washington, DC, www.fcc.gov) The U.S. government agency that regulates interstate and international communications including wire, cable, radio, TV and satellite. The FCC was created under the U.S. ) and the Department of Justice (DoJ) with minimal conditions. Sprint Nextel will be the third largest wireless operator in the U.S. with approximately 41 million subscribers. The rating upgrade reflects the strength in Sprint Nextel's credit profile, including its ample financial flexibility resulting from a sizable cash position, network assets, and strong free cash flow, which Fitch expects will enable further balance sheet improvement. Additionally, Fitch believes that the combined company through operating and capital expense synergies, as well as its unique positioning of wireless assets with a well balanced mix of consumer and business segments, will more effectively compete relative to each company operating individually thus enabling strong operating performance leading to sustainable EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become and free cash flow growth. While wireless industry competition is strong, consolidation should lead to better market stability with growth in data revenues providing an important positive offset to voice pricing declines. The rating strengths are balanced against the near-term challenges faced by Sprint Nextel as the company integrates its wireless operations with uncertainties regarding the ultimate level and/or timing of operating and capital synergies; spins off its FCF FCF Free Cash Flow FCF Free Congress Foundation (conservative activist group) FCF Feline Conservation Federation FCF Frontiersmen Camping Fellowship FCF Functional Check Flight FCF Fluids and Combustion Facility generating local operations, consequently increasing business risk as a standalone wireless operator; and negotiates sizable settlements with its affiliates due to the potential contingent liabilities arising from the merger. Despite the large funding requirements, over the next 12-18 months, Fitch anticipates Sprint Nextel's credit profile to further strengthen and financial risk to decrease as the company continues to reduce debt through scheduled maturities, increases its cash generation, resolves the affiliate issue, and integrates the wireless operations to realize significant synergy opportunities. By the end of 2006, Fitch expects debt to operating EBITDA to be 1.6 times (x) or better. Fitch acknowledges the risks and uncertainties surrounding the potential outcomes of the various lawsuits filed by Sprint Nextel affiliates claiming certain breaches of their management agreements. Fitch believes Sprint Nextel will strike agreements with the Sprint affiliates over the next several quarters to either acquire the entity or enhance the relationship through additional considerations. While Fitch does not expect Sprint Nextel to acquire all of the Sprint affiliates, the rating incorporates approximately $14 billion based on current market value related to satisfying the affiliate liability of Nextel Partners and the Sprint affiliates. Sprint Nextel will likely generate a significant portion of the funds required for this potential obligation through the spin-off of its local operations in mid 2006. Although Sprint Nextel will spin off the local operations that produced approximately $1 billion of FCF, this loss is primarily offset by approximately $700 million in savings from the annual dividend requirements that Sprint paid. The remaining requirements from this obligation will be funded by cash and expected free cash flow. Sprint Nextel's liquidity position is very strong given a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma cash and short-term investment position of $9.6 billion at the end of second-quarter 2005. Nextel also has an 18% interest in NII (National Information Infrastructure) The U.S. government's policy for managing advanced technology in the country. The Clinton/Gore administration (1993-2001) was very enthusiastic about the Internet and proposed that it should be funded by private industry and be Holdings Inc. (NIHD NIHD National Initiative for Human Development ) worth an estimated $1 billion that could be monetized. Sprint maintains a $1.0 billion, 364-day credit facility that expires in June 2006 and contains a $1.0 billion, one-year term-out option. Sprint has a $500 million accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying securitization program that supports its wireless business and a $700 million accounts receivable securitization program that support the company's long-distance program. At the end of the first quarter, these programs had $257 million and $347 million of available funding capacity, respectively. Nextel has $6.2 billion of bank facility capacity, including a $4 billion secured revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility maturing in 2009 and a $2.2 billion secured term loan A maturing in 2010. At the end of the second quarter, Nextel had $1 billion drawn and a $2.5 billion letter of credit against its bank facility. Key terms for the $4 billion credit facility allow for a release of the assets securing the credit agreement, a release of collateral and guarantees, an elimination of the structural subordination, and the enablement of the credit facility to become pari passu [Latin, By an equal progress; equably; ratably; without preference.] Used especially to describe creditors who, in marshalling assets, are entitled to receive out of the same fund without any precedence over each other. PARI PASSU. By the same gradation. with Nextel's senior unsecured notes upon meeting additional conditions. Fitch expects this to occur following the close of the merger. Additionally, Sprint Nextel has approximately $200 million of remaining maturities in 2005, $1.6 billion in maturities for 2006, and $1.6 billion in 2007. Following Nextel's exchange offer and consent solicitation Consent Solicitation A solicitation by one party to the stakeholders of a particular security for the consent of a material change. Notes: Should the majority of stakeholders provide valid consent prior to the consent expiry date, the issuer may then follow through with to amend its 7.375%, 6.875%, and 5.95% senior redeemable notes, Fitch expects Sprint Nextel will guarantee the debt on the exchanged notes. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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