Sprint Shares Spiral Down on Rumors
Sprint Corp. shares fell as much as 26% on Friday as skittish traders reacted to rumors that the nation’s No. 3 long-distance provider faces a cash crunch.
The stock’s abrupt plunge, which sent shares in Sprint’s core business to their lowest level in more than a decade, illustrates Wall Street’s severe distrust of the telecommunications sector and shows investors’ fear of being stuck in yet another big industry bankruptcy.
Executives at Overland, Kan.-based Sprint tried to calm investors by taking the unusual step of issuing a statement to deny the rumors. Sprint released a detailed accounting of its cash and available credit lines and said it has not tapped any of its bank credit lines and has no plans to do so because it has sufficient cash to fund operations beyond 2002.
Investors reacted tepidly to Sprint’s comments, allowing the company’s stock to rebound only slightly from its intraday low of $6.65. In New York Stock Exchange trading, Sprint’s FON shares, which reflect the local and long-distance phone business, closed at $7.05, down $1.95, and shares in PCS, Sprint’s wireless business, fell 70 cents to $3.
“It doesn’t take much to panic people these days in the telecom space,” said Patrick Comack of Guzman & Co., which doesn’t own Sprint’s two stocks but rates both “outperform.” His firm has done banking for Sprint.
Sprint has $20.3 billion in long-term debt and lease obligations. It has $1.85 billion in cash and available credit, including $650 million in cash at the end of June. In addition, Sprint has a $2-billion credit line that expires next month and is renegotiating terms for a separate $3-billion credit line.
The carrier wants its banks to remove a requirement that the company’s debt ratings stay above “junk” levels.
Unlike many of its peers, Sprint’s credit rating has not fallen below investment grade, but its rating may change because of its deteriorating financials. Sprint reported a consolidated second-quarter loss, and its phone unit reported lower sales for the sixth straight quarter.
After watching cash-rich WorldCom Inc.’s financial health go from bad to bankruptcy in a matter of weeks, investors are closely watching Sprint’s debt payments and credit lines, said analyst F. Drake Johnstone of Davenport & Co. He doesn’t own Sprint shares, and his firm doesn’t do business with the company or rate its stocks.
“The concern of the market is the expiration of Sprint’s bank facility in August,” Johnstone said. “That doesn’t mean Sprint has any short-term liquidity issues ... but in this market, it’s shoot first and ask questions later.”
