Softbank Debt Ratings Lowered on Sprint Takeover

Standard & Poor's has lowered its 'BBB' long-term corporate credit and senior unsecured debt ratings on Softbank by two notches to 'BB+' following the company's imminent takeover of USA based Sprint.

The outlook on the long-term corporate credit rating on Softbank is stable.

­S&P said that it bases the 'BB+' long-term corporate credit rating on Softbank on their assessment that the group has a "satisfactory" business risk profile and a "significant" financial risk profile following the merger.

Standard & Poor's believes consolidated EBITDA for Softbank will grow following the acquisition because operating performance for both Softbank and Sprint Nextel is improving. They maintain their base-case expectation that Softbank's debt to EBITDA (after adjustments including for lease and pension liabilities and to subtract surplus cash) will be around the mid-4.0x level as of the end of fiscal 2013 (ending March 31, 2014), but expect it to improve to below 4.0x by the end of fiscal 2015.

The stable outlook reflects the rating agency's expectation that earnings in Softbank's domestic mobile and other businesses will likely grow steadily, backed by strong marketing capabilities, improving brand recognition, and better network capacity and quality. Sprint Nextel's exposure to intense competition in the U.S. market is unlikely to subside substantially in the next two to three years; however, S&P expects its operating performance to improve gradually, in part reflecting cost reductions and other merger benefits.

S&P added that it would consider lowering our ratings if the competitive environment in the domestic and U.S. markets deteriorates significantly or if difficulties in merger integration arise that materially weaken Softbank's consolidated profitability and cash flow generation.