SoftBank Downgraded By Two Notches To ‘Junk’ Status

Standard & Poor’s Ratings Services downgraded SoftBank’s debt rating by two notches to ‘junk’ status, after its Sprint acquisition got regulatory clearances.


The rating agency cut SoftBank Corp (OTCMKTS:SFTBF) (TYO:9984)’s rating to BB+, which is the highest junk grade rating, from BBB.

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According to a report published last week, the Federal Communications Commission has voted in favor of SoftBank’s acquisition of 78 percent of Sprint Nextel Corporation (NYSE:S). The approval also covered Sprint Nextel’s bid to acquire Clearwire Corporation.

Standard & Poor’s feels SoftBank Corp (OTCMKTS:SFTBF) (TYO:9984)’s debt will increase considerably as a result of acquiring 78 percent stake in the third biggest U.S. wireless carrier Sprint Nextel Corporation (NYSE:S).

Enhanced Debt and Financial Burden

The rating agency cites SoftBank Corp (OTCMKTS:SFTBF) (TYO:9984) enhanced debt and financial burden, Sprint Nextel’s weak free cash flow generation and high debt ratios as reasons for the ratings downgrade.  S&P also reports that Sprint Nextel controlled Clearwire Corporation poses a highly leveraged financial risk profile.

However, the rating agency anticipates Sprint’s profitability would improve under its new owner, as SoftBank is supported by its strong market position in Japan.

Rating Agencies’ Earlier Warning

Earlier, the rating agencies, Standard & Poor’s and Moody’s Investors Service placed the Tokyo-based mobile phone carrier under review for possible downgrade in October. The rating agencies expressed their concern that SoftBank Corp acquisition of Sprint Nextel Corporation might undermine the phone carrier’s financial strength.

On June 12, Moody’s Investor Services indicated SoftBank Corp (OTCMKTS:SFTBF) (TYO:9984)’s offer for Sprint Nextel Corporation (NYSE:S) would have a limited impact on its rating. The current rating stands at the lowest investment grade rating of Baa3.

Japan’s SoftBank Corporation would be paying $16.6 billion to Sprint Nextel Corporation’s shareholders, as well as infusing $5 billion of fresh capital for its 78 percent stake.

SoftBank Stock Tumbles

Post the rating agency’s announcement, SoftBank Corp (OTCMKTS:SFTBF) (TYO:9984)’s shares tumbled 3.4 percent at ¥5,680, despite finishing the Monday morning session off 0.2 percent. The Nikkei Stock Average ended Monday down 1.4 percent at 14,109.34.

Resonating the rating agency’s downgrade, the five-year credit default swap on SoftBank widened by 20 basis points to 210 basis points.