Standard & Poor’s slashes SoftBank credit rating

SoftBank, led by billionaire Masayoshi Son, had its credit rating cut to junk by Standard & Poor’s yesterday after winning approval from the Federal Communications Commission for its $21.6 billion bid to buy Sprint Nextel.

The rating was cut to BB+, the highest noninvestment grade, from BBB, with a stable outlook, S&P said in a statement today. The FCC announced July 5 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 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 yen ($11.9 billion) in short-term borrowings as of March 31 and 1.7 trillion yen of long-term debt, according to data compiled by Bloomberg. Outstanding debt includes 130 billion yen of 1.24 percent bonds maturing on Sept. 17.

A lower credit rating indicates a higher risk of a default and can raise borrowing costs.

SoftBank shares fell 3.4 percent to 5,680 yen at the 3 p.m. close of trade in Tokyo, after the ratings cut.

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 has said it may lower its ranking to three steps above junk.

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 of 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.

Sprint separately bid for Clearwire, a mobile broadband company it already majority owned, to gain access to valuable wireless airwaves. SoftBank needs the spectrum to roll out a fourth-generation network in the U.S. to challenge Verizon Wireless and AT&T. Bloomberg