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Rating Action:

MOODY'S AFFIRMS SPRINTS RATINGS ON SPA SALE; OUTLOOK REMAINS NEGATIVE ON SIGNIFICANT OPERATIONAL CHALLENGES

23 Sep 2002
MOODY'S AFFIRMS SPRINTS RATINGS ON SPA SALE; OUTLOOK REMAINS NEGATIVE ON SIGNIFICANT OPERATIONAL CHALLENGES Moody's Investors Service affirmed the senior unsecured long-term ratings of Sprint Corporation and wholly guaranteed Sprint Capital Corp. (together, "Sprint") at Baa3 and company's short-term ratings at P-3. Moody's also affirmed the long-term ratings of Sprint's subsidiaries. The outlook for all ratings remains negative.

Moody's is affirming the company's ratings as it views the sale of Sprint Publishing and Advertising ("SPA") for $2.23 billion as improving Sprint's near-term liquidity. In addition to the cash from the SPA sale, Sprint will have access to an undrawn $1.5 billion bank facility, and nearly $500 million of availability under receivable securitization programs to help repay about $1.3 billion of maturing debt over the next twelve months. Moody's also notes modest strengthening of Sprint's long distance operation, Global Markets Group ("GMG"), as it picks up some new customers from other distressed long distance carriers.

Despite an improving liquidity profile, the rating outlook remains negative, driven primarily by concern over the subscriber loss expected this quarter at Sprint PCS ("PCS") due to very high churn of its Clear Pay customer base. Since PCS represents nearly 50% of Sprint's revenues and the unit is still consuming capital, Moody's believes a slow-growth scenario would make it more difficult for the PCS unit to turn the cash flow positive to the degree needed to start aggressively paying down Sprint's debt load, even net of the debt repayment from the SPA sale. Sprint has now had two poor quarters in a row with respect to its PCS subscriber additions, and if it does not fix the churn problem and resume growth soon, a rating review may be warranted Slowing growth is acutely problematic for the PCS affiliates, whose financial profile is deeply speculative. If the PCS affiliates have to restructure their debt, Moody's is concerned that Sprint may also be negatively impacted.

Sprint's rating outlook remains negative as improvements to free cash flow from operations are the result of cost cutting and capital spending reductions to offset continued top line weakness in GMG and increased subscriber churn at PCS. Moody's believes negative rating pressure will exist until: 1.) PCS successfully addresses the high churn from its Clear Pay customers; 2.) PCS presents a credible business plan for free cash flow improvement for 2003 and beyond; and 3.) GMG stems top line revenue erosion.

The operating environment in telecommunications remains challenging. Economic uncertainty is not helping growth prospects and this is exacerbating an already intense competitive environment in the wireless sector. After several quarters of market share gains, PCS is now experiencing growing pains as its risky Clear Pay customer base is churning in large numbers. This situation needs to be addressed quickly, as PCS is now Sprint's dominant operating unit. GMG is successfully cutting costs and now appears to be having some success growing its enterprise customer base. This unit has been in steady decline and is trying to reverse this trend by taking advantage of its competitors' disarray. Sprint's incumbent local exchange subsidiaries remain stable and greatly modify the business risk inherent in a declining long distance segment and a highly competitive wireless industry.

Despite its many complex operational challenges, Sprint is successfully improving its liquidity profile. During 2002, Sprint has paid down its commercial paper balances, renewed on an unsecured basis a $1.5 billion 364-day revolving credit facility with a one-year term out, created a PCS accounts receivable securitization program, renewed and restructured a GMG receivables securitization program so that it would contain no ratings trigger, and sold SPA for $2.23 billion. Moody's believes the company's focus on financial flexibility is prudent given the operational uncertainty confronting all telecommunication service providers.

Ratings affirmed include the following:

Sprint Corporation - senior unsecured long-term at Baa3; short-term at P-3

Sprint Capital Corporation - senior unsecured long-term at Baa3; short-term at P-3

United Telecommunications Inc. - senior unsecured long-term at Baa3

United Telephone Co. of Florida - first mortgage bonds at A3

United Telephone Co. of Ohio - first mortgage bonds at A3

United Telephone Co. of Pennsylvania - first mortgage bonds at A3

Carolina Telephone and Telegraph Company - senior unsecured long-term at Baa1

Centel Capital Corp. - senior unsecured long-term at Baa3

Central Telephone Co. - senior secured long-term at A3

Sprint is a telecommunications company headquartered in Westwood, Kansas.
No Related Data.
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