T-Mobile eyes all-stock merger with Sprint, leverage stays below 2.9x

By Devika Patel

Knoxville, Tenn., April 30 – T-Mobile US, Inc. plans to merge with Sprint Corp. in an all-stock transaction at a fixed exchange ratio of 0.10256 T-Mobile shares for each Sprint share or the equivalent of 9.75 Sprint shares for each T-Mobile share, which will leave the combined company with leverage under 2.9x with plans to get below 2x within four years.

The combined company will be named T-Mobile.

The company expects to get an investment-grade rating and will not take its leverage over 2.9x, which it will bring down to less than 2x within four years.

“We are committed over the long-term to achieving an investment-grade rating and we expect a maximum net leverage of approximately 2.9x,” T-Mobile executive vice president and chief financial officer J. Braxton Carter said on the companies’ conference call announcing the deal on Monday.

“We are planning on rapidly deleveraging with pro forma net leverage being less than 2x in three to four years,” he said.

The company believes it will have investment-grade ratings for its secured debt.

“[We anticipate] corporate ratings of mid- to high double B, unsecured notes rating of low to high double B and secured debt ratings of low triple B,” Carter said.

“This will allow us approximately $43 billion of investment-grade secured debt,” he said.

The combined company will have financial discipline.

“We will be consistent with our financial discipline as a combined company,” Carter said.

In response to the announcement, all three ratings agencies boosted Sprint’s ratings status.

Fitch Ratings said it placed the B+ long-term issuer default ratings and outstanding debt of Sprint Corp. and its subsidiaries on rating watch positive.

The transaction, as proposed, is likely to lead to a three-notch upgrade of the issuer default ratings and outstanding debt of Sprint based on existing assumptions, Fitch said.

Fitch believes the merger will substantially strengthen the credit support for existing Sprint bondholders.

The combination is expected to create significant scale, asset and synergy benefits that should materially improve the combined entities' long-term competitive position, Fitch added.

S&P said it placed its B corporate credit and senior unsecured debt ratings on Sprint Corp. on CreditWatch with positive implications.

S&P also placed the B+ issue-level rating on Sprint's senior unsecured notes with junior subsidiary guarantees on CreditWatch with positive implications. At the same time, S&P said it is lowering its issue-level rating on Sprint's 9¼% debentures due 2022 to B from BB- and placing the rating on Watch positive following the February 2018 amendment to the company's credit facility that removed security from the notes.

“We believe an upgrade, if any, on Sprint would be as high as three notches to BB. Although highly unlikely, there is the possibility of a four-notch upgrade if we were to affirm the ratings on T-Mobile,” S&P said in a news release.

Moody's Investors Service said it placed Sprint Corp.'s B2 corporate family rating, B2-PD probability of default rating and ratings on its existing debt instruments on review for upgrade.

Sprint's SGL-3 speculative grade liquidity rating is unchanged.

Should the transaction proceed, Moody's said it expects to withdraw Sprint's corporate family rating, probability of default rating and speculative grade liquidity ratings concurrent with closing which, pending regulatory approvals, is expected by June 2019.

The review for upgrade is based on an assessment that the combined company would materially improve Sprint's standalone credit profile, Moody's said.

The transaction is expected to close no later than the first half of 2019.

T-Mobile is a Bellevue, Wash.-based wireless communications provider. Sprint is an Overland Park, Kan.-based wireless telecommunications services and internet carrier holding company.

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