Softbank Corp., led by billionaire Masayoshi Son, had its credit rating cut to junk by Standard & Poor’s after winning approval from the Federal Communications Commission for its $21.6 billion bid to buy Sprint Nextel Corp.
The rating was cut to BB+, the highest noninvestment grade, from BBB, with a stable outlook, S&P said in a statement Monday. The FCC announced Friday that the deal is in the public’s interest, giving Son a position in the U.S. market.
Son, 55, wants to use the acquisition to help fulfill his ambition of making the Tokyo-based company the world’s biggest mobile phone operator. Softbank won a bidding war for Sprint, the third-largest U.S. carrier, when it raised its takeover bid and Dish Network Corp. abandoned a competing proposal.
“Sprint Nextel’s exposure to intense competition in the U.S. market is unlikely to subside substantially in the next two to three years,” S&P said in the statement. Still, “we expect its operating performance to improve gradually, in part reflecting cost reductions and other merger benefits.”
Softbank reported ¥1.2 trillion in short-term borrowings as of March 31 and ¥1.7 trillion in long-term debt, according to data compiled by Bloomberg. Outstanding debt includes ¥130 billion in 1.24 percent bonds maturing Sept. 17.
A lower credit rating indicates a higher risk of a default and can raise borrowing costs.
Moody’s Investors Service and S&P put the Japanese carrier’s rating on review in October, saying a cut to below investment grade was possible. Japan Credit Rating Agency Ltd. has said it may lower its ranking to three steps above junk.
Overland Park, Kansas-based Sprint rejected Dish’s offer in favor of a sweetened Softbank bid. Softbank will pay $16.6 billion to Sprint shareholders and inject $5 billion in new capital into the target for a 78 percent stake, it said June 11.
Softbank plans capital spending for Sprint of $8 billion this year and in 2014 before dropping to $6 billion annually for the four years after that.
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