Moody's Downgrades Sprint Debt Ratings

Moody's cut its rating on Sprint's senior unsecured long-term debt from Baa3 to Baa2, one notch above junk status. It cut Sprint's short-term debt to Prime-3 from Prime-2.

Sprint spokesman Mark Bonavia downplayed the downgrade, which affects about $22 billion of debt.

"It's obviously a disappointment, but certainly won't have an impact on the way we run our operations or our overall financial picture," Bonavia said.

Shares of Sprint's wireline business FON Group closed down 21 cents to $14.94 on the New York Stock Exchange Friday. Shares in its wireless business PCS Group was down 53 cents to $7.46.

The downgrade extends a wave of rating cuts for long-distance telephone companies. On May 29, Moody's lowered its rating on No. 1 long-distance carrier AT&T 's long-term debt to two notches above "junk" status. On May 10, Moody's slashed No. 2 WorldCom 's debt to junk status.

"It's no surprise," independent telecom analyst Jeff Kagan said of Sprint's downgrade. "The whole sector is being downgraded, company by company."

Moody's attributed Friday's downgrade to cash-flow concerns about Sprint, the nation's third-largest long-distance carrier, which is based in Overland Park, Kan.

"This could be a temporary condition if the company snaps out of it," said Kagan, who is based in Atlanta.

"What they really need to do is transform the company and re-invent the company" by moving into new sectors, such as the Internet or local telephone sales, he said.

Moody's said it believes Sprint's long-distance division will continue to struggle "in a difficult competitive environment." Meanwhile, its wireless service, Sprint PCS, will continue to require heavy capital spending, while the industry is likely to become more competitive, Moody's said.

"As strong as PCS' performance has been since it launched in the mid-1990's, the company remains vulnerable to a wireless price war and continued pressure to invest heavily in its network," Moody's said in a news release.

The rating downgrade also reflects concerns that Sprint may buy some if its affiliates, which carry heavy debt.

Standard and Poor's rates Sprint's senior debt "BBB-plus," two notches above Moody's, with a negative outlook.

In late February, Sprint had to use its directory publishing business to secure a $1 billion loan from Citibank NA and Deutsche Bank AG after the company found itself unable to raise as much short-term cash as it needed.

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