Sprint cancels $3 billion convertible sale

Karen Brettell and Sinead Carew

NEW YORK (Reuters) - Sprint Nextel Corp (S.N: Quote, Profile, Research, Stock Buzz), the No. 3 mobile phone service, canceled its $3 billion convertible sale a day after announcing it, saying the terms being offered were not favorable for a deal.

News of the planned financing sent Sprint shares down 14 percent on Wednesday as investors were unhappy at the prospect of a new issue diluting the value of the already deflated stock.

The company said it decided to cancel the sale, which had been led by Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research, Stock Buzz) , Goldman Sachs Group Inc (GS.N: Quote, Profile, Research, Stock Buzz), JP Morgan and Citigroup Global Markets (C.N: Quote, Profile, Research, Stock Buzz), because the "terms being offered were not economically attractive."

"We had attempted this placement because we anticipated that it would allow us an opportunity to accelerate the payment of our debt, but the conditions turned out not to be favorable," said Sprint spokesman James Fisher.

The cancellation is another sign that companies are increasingly challenged to raise capital at affordable rates as banks reduce their corporate exposures and investors demand higher premiums to take on their debt.

Sprint's debt weakened on the news and its 6 percent bond due in 2016 widened 42 basis points to 4.46 percentage points over U.S. Treasuries. The debt costs have jumped from around 3 percent at the beginning of 2008 and less than 2 percent last summer, according to MarketAxess.

But Sprint shares rose 6 percent as investors, who have seen the stock fall as much as 70 percent since its 2005 purchase of Nextel Communications, heaved a sigh of relief.

The company said the move did not change its outlook.

"Sprint remains in solid financial shape. We have plenty of liquidity with $3.5 billion in cash," Fisher said, adding the cancellation would not affect Sprint's financial guidance nor its plan to reduce its gross debt by at least $1 billion by the end of the current quarter.

Sprint, which is struggling to stem customer losses, had revealed the plan for a private placement of convertible preferred shares worth about $3 billion on Wednesday morning.

Analysts had been puzzled by the plan as the company did not appear to face an imminent liquidity crisis.

The convertible announcement had come just before it posted better than expected financial results and fewer than expected customer losses, but it also said on Wednesday that customer cancellations would swell again in the current quarter.

The convertible offering had been expected to price on Thursday evening, said International Financing Review, a Thomson Reuters publication that reported the cancellation before Sprint put out a statement confirming the decision.

The securities were expected to carry a coupon of 4.75 to 5.25 percent and have a 25 to 30 percent premium, IFR had said on Wednesday.

One trader said the cancellation puts Sprint in a potentially difficult situation, because it has shown it wanted to raise capital to pay back debt.  Continued...