Moody's Investors Service affirmed its B3 corporate family rating of Sprint (NYSE: S) but upgraded the carrier's speculative grade liquidity (SGL) and changed its ratings outlook to stable from negative.
The B3 rating marks "a one notch lift" for Sprint, Moody's said, due to expectations Sprint and its parent SoftBank "will seek to retain the viability of Sprint as a going concern." SoftBank's support has been crucial as Sprint has improved its liquidity position, Moody's said, and the U.S. operator has made progress recently in cutting costs and adding postpaid subscribers.
Moody's said it believes Sprint's improved liquidity gives the operator the leverage and cash it needs to address near-term maturities and to fund its business for the next 18 months. It also reflects Sprint's gains in revenue, churn and subscriber growth over the past three quarters.
Indeed, the nation's fourth-largest mobile carrier has made strides in recent months to regain its financial footing. Sprint continues to slash costs in an effort to trim $2 billion from its annual budget, it established a $2 billion bridge facility, and is working to secure as much as $5 billion from moves to borrow against its spectrum and network gear.
Sprint owes $10 billion that will come due by the end of 2020 and has to make $2.3 billion in debt payments this year. And its financial struggles are exacerbated by a flagging junk bond market that will likely only make it more difficult for Sprint to refinance its debt in the coming months.
Sprint said last week that it added 173,000 net postpaid phone customers in the second quarter, but it also posted a net loss of $302 million. And analysts remain concerned that Sprint's cost-cutting may hinder its efforts to effectively maintain its network.
"Despite all the improvements discussed above, Sprint remains in a fragile state of recovery, having stabilized the business and balance sheet but not yet transitioned to a self-funding business model," Moody's said in a note to investors. "Many hurdles remain, and Sprint must continue to [execute] crisply while simultaneously optimizing its cost structure, aggressively deploying new network capacity and continuing to address its meaningful maturity profile. Moody's believes Sprint's business, operational and financial risk remain in line with its B3 rating."
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