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The stock of Sprint Nextel Corp. fell again Monday on worries that its creditworthiness will suffer because of network upgrade plans.
THE SPARK: Standard and Poor's initiated a review of the company's credit rating, saying the move came with "negative implications."
The stock had fallen 20 percent on Friday, after the Overland Park, Kan.-based company announced plans to speed up an overhaul of its network and reduce dependence on Clearwire Corp.'s "fourth-generation" or 4G, network, even though Sprint owns more than 50 percent of Clearwire. The upgrades mean that Sprint will likely need to raise money soon. The costs associated with selling Apple Inc.'s iPhone should also weigh on the company's finances.
THE BIG PICTURE: Standard and Poor's Rating Services said it has placed its "BB-" credit rating on Sprint on "CreditWatch" with negative implications. That means the ratings agency could lower the rating after finishing a 90-day review.
THE ANALYSIS: S&P analyst Allyn Arden wrote in a research note that the review is prompted by a combination of factors that could deteriorate the company's creditworthiness over the next couple of years, including the high costs of the network upgrade, the addition of the iPhone, ongoing weak profitability, and uncertainty regarding the Clearwire relationship.
"We recognize that the network upgrade could help Sprint substantially improve its margins, although this may take a few years or more to arrive, and that the addition of the iPhone could lead to longer term customer retention and profitability benefits," Arden wrote. But while Sprint has made some improvements in improving its business, "the company may be challenged to maintain positive operating momentum as industry conditions mature and competition intensifies, most notably from better capitalized AT&T Inc. and Verizon Communications Inc.," Arden wrote.
A Sprint representative declined to comment.
SHARE ACTION: Shares fell 24 cents, or 9.8 percent, to $2.18. Earlier in trading the stock hit $2.10, its lowest point since December 2008.