Five-year credit protection on Sprint Corp. dramatically widened last week, blowing out to 530 basis points Wednesday compared with 350bps the previous week. Much of the widening was related to newspaper articles predicting iPCS Inc, an affiliate of Sprint, is close to filing for bankruptcy, according to a trader in New York. General widening of credit spreads in the telecom sector also affected protection on the name, with Sprint being one of the weakest credits in the industry alongside AT&T Wireless. The January effect, which traditionally sees the buying back of names that had been offloaded at year-end, is beginning to dissipate and buyers for the Sprint credit are not as deep as had previously been thought, he added.
Jim Veneau, v.p. and senior analyst at Moody's Investors Service in New York, which rates Sprint as Baa3 with a negative outlook, explained that although Sprint is not contractually required to take over debt problems of affiliates, including iPCS, the financial difficulty of the affiliate impacts on the firm through the use of Sprint branding to iPCS customers. As far as iPCS customers are concerned they are clients of Sprint, thus when the affiliate comes under financial distress it creates a public relations issue for Sprint, he explained.
In order to take Sprint off its negative outlook, which it has held since last June, the company needs to address the high churn rate among Clear Pay calling plan customers at Sprint PCS, its wireless division, as well as ensure the successful implementation of this division's business plan, which shows free cash flow improvement, said Veneau.
Five-Year Credit Protection On Sprint
