Sprint - Nextel 2011 Annual Report Download - page 48

Table of Contents
Downgrades of our current ratings do not accelerate scheduled principal payments of our existing debt. However, downgrades may cause us to incur higher
interest costs on our credit facilities and future borrowings, if any, and could negatively impact our access to the public capital markets.
The terms and conditions of our revolving bank credit facility require the ratio of total indebtedness to trailing four quarters earnings before interest, taxes,
depreciation and amortization and certain other non-recurring items, as defined by the credit facility (adjusted EBITDA), to be no more than 4.5 to 1.0. In October 2011,
our credit facility was amended to prospectively redefine adjusted EBITDA to exclude costs comprising equipment net subsidy, as defined by the amended agreement, to
the extent such costs exceed $1.1 billion in any of the six consecutive fiscal quarters ending March 31, 2013. The amount added back related to this exclusion cannot
exceed $1.75 billion in any four consecutive fiscal quarters and is limited to $2.7 billion in the aggregate for the six consecutive fiscal quarters ending March 31, 2013.
After March 31, 2012, the ratio will be reduced to 4.25 to 1.0, and further reduced to 4.0 to 1.0 after December 31, 2012. As of December 31, 2011 and 2010, the ratio
was 3.7 to 1.0. Under this revolving bank credit facility, we are currently restricted from paying cash dividends because our ratio of total indebtedness to adjusted
EBITDA exceeds 2.5 to 1.0. The terms of our amended revolving bank credit facility provide for an interest rate equal to the London Interbank Offered Rate (LIBOR),
plus a margin of between 2.75% to 4.0% beginning in October 2011. Certain of our domestic subsidiaries have guaranteed the revolving bank credit facility.
A default under our borrowings could trigger defaults under our other debt obligations, which in turn could result in the maturities being accelerated. Certain
indentures that govern our outstanding notes also require compliance with various covenants, including limitations on the incurrence of indebtedness and liens by the
Company and its subsidiaries, as defined by the terms of the indentures. Certain of our indentures also contain covenants that limit the Company's ability to sell all or
substantially all of its assets or to merge or consolidate with or into other companies.
We expect to remain in compliance with our covenants through at least the end of 2012, although there can be no assurance that we will do so. Although we
expect to improve our subscriber results, and execute on our Network Vision plans, including the decommissioning of the Nextel platform, if we do not meet our plan,
depending on the severity of any difference in actual results versus what we currently anticipate, it is possible that we would not remain in compliance with our covenants
or be able to meet our debt service obligations, which could result in acceleration of our indebtedness. If such unforeseen events occur, we may engage with our lenders to
obtain appropriate waivers or amendments of our credit facilities or refinance borrowings, although there is no assurance we would be successful in any of these actions.
CURRENT BUSINESS OUTLOOK
We endeavor to both retain our existing and add new wireless subscribers in order to reverse the net loss in postpaid wireless subscribers that we have
experienced. We expect to improve our subscriber trends by continuing to improve the customer experience by enhancing our network, providing diversity of devices, and
through offers which provide value, simplicity and productivity.
Given the current economic environment, the difficulties the economic uncertainties create in forecasting, as well as the inherent uncertainties in predicting
future customer behavior, we are unable to forecast with assurance the net retail postpaid subscriber results we will experience during 2012 or thereafter. However, the
Company expects 2012 Consolidated segment earnings to be between $3.7 billion and $3.9 billion, including the estimated impact of the iPhone and the effects of
N
etwork Vision. We expect total net service revenue growth of approximately 4% to 6%. The Company also expects full year capital expenditures in 2012, excluding
capitalized interest, to be approximately $6 billion.
The above discussion is subject to the risks and other cautionary and qualifying factors set forth under “Forward-Looking Statements” and Part I, Item 1A
“Risk Factors” in this report.
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Rating
Rating Agency Issuer Rating Unsecured Notes Guaranteed Notes Credit
Facility Outlook
Moody's B1 B3 Ba3 Ba1
Review for
Downgrade
Standard and Poor's B+ B+ BB- - Negative
Fitch B+ B+ BB BB Negative