Sprint's stock falters on warning of bankruptcy risks

Sprint Nextel's (NYSE:S) stock slipped 4.5 percent Monday after a financial analyst said the carrier faces an increasing risk of bankruptcy amid large debt commitments, its multibillion-dollar network upgrade and costs associated with selling Apple's (NASDAQ:AAPL) iPhone. However, other analysts were more skeptical of that prognosis and said that while Sprint faces risks, a near-term bankruptcy is not one of them.

Bernstein Research analyst Craig Moffett made waves with his research note, in which he said the company faces two distinct outcomes over the next several years. "In the first, the company successfully navigates its complicated Network Vision upgrade, stabilizes Clearwire's (NASDAQ:CLWR) financial position, and delivers a compelling 4G product," he wrote. "In the second, some combination of its gargantuan take-or-pay contract with Apple, a hobbled 4G offering, and a stupendous debt burden bring the company to its knees."

Sprint declined to comment on Moffett's report.

Moffett wrote that Sprint has $1.8 billion in debt maturing through the end of 2013, with $1.4 billion in debt maturing in 2014 and $2.6 billion in 2015. In 2015, Clearwire has another $3 billion maturing. Coupled with all of that debt, Sprint may face challenges relative to Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) if and when an LTE iPhone is announced. Sprint will launch LTE by mid-year on 10 MHZ of its G Block PCS spectrum, but its LTE network will be smaller than AT&T and Verizon's to start. That, coupled with the costs of selling the iPhone--Sprint signed a four-year, $15.5 billion contract with Apple--could hurt Sprint significantly, Moffett wrote.   

"To be clear, we are not predicting a Sprint bankruptcy. We are merely acknowledging that it is a very legitimate risk. And notwithstanding a recent rally in Sprint shares, we believe that risk is rising," Moffett wrote. "Unfortunately, at this point we simply don't believe there is any analytical framework that provides strong conviction as to whether Sprint can or cannot avoid bankruptcy over the next four years or so."

Other analysts are not quite as alarmed over Sprint's position. "The risk they could go bankrupt has gone up but that's a very, very low risk," Pacific Crest analyst Steve Clement told Reuters, adding that Network Vision's $4 billion to $5 billion in costs could help Sprint run a more efficient network. Sprint has said the project will allow it to shut off its iDEN network and reduce costs overall.

CreditSights analyst Ping Zhao told Reuters that Sprint could face a deteriorating credit profile over the next few years as its costs rise, but that the company could go to the capital markets for more debt, something Moffett said was not a viable long-term option. "I don't believe in the next couple of years they're going to be even close to bankruptcy," Zhao said. "They can and do have the capacity to issue secured debt."

For more:
- see this Forbes article
- see this Reuters article
- see this Dow Jones Newswires article (sub. req.)

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