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Sprint joins Moody's downgrade club

Sun, 06/09/2002 - 8:00pm
Susan Rush

Sprint has become the latest telecom company to be hit with a rating downgrade from Moody's Investors Service. The recent cut puts Sprint's credit rating one notch above "junk" status.

On Friday, Moody's cut Sprint's senior unsecured long-term rating from Baa2 to Baa3 — a notch above junk. The downgrade, which affected roughly $22 billion of debt, was sparked by Moody's view that Sprint will not generate material free cash flow as a percentage of total debt until 2004. The firm also cited Sprint PCS's need for "heavy" capital spending while it grows, the struggle its long-distance business faces to turn itself around and liquidity remaining a possible concern until Sprint secures a new bank facility.

The rating outlook is negative, Moody's said. Standard & Poor's also sees the rating outlook as negative for Sprint, while Fitch Ratings believes the outlook is stable.

Although Sprint is disappointed by the action taken by Moody's, the company does not believe the downgrade will have an impact on its financial flexibility or its operations.

Moody's has been busy lately in the telecom sector, downgrading Qwest Communications International Inc. and WorldCom Inc. to junk status, and cutting AT&T Corp.'s rating two notches to Baa2 — two notches above junk status. Verizon Communications Inc. is being reviewed for a possible downgrade.

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