T-Mobile USA, Inc. -- Moody's assigns Ba3 to T-Mobile's proposed senior unsecured notes

Rating Action: Moody's assigns Ba3 to T-Mobile's proposed senior unsecured notesGlobal Credit Research - 16 Mar 2021New York, March 16, 2021 -- Moody's Investors Service (Moody's) has assigned a Ba3 to T-Mobile USA, Inc.'s (T-Mobile) proposed senior unsecured notes. T-Mobile intends to use $2.0 billion of the net proceeds from the sale of these new unsecured notes, to be issued in three tranches, to acquire spectrum licenses pursuant to the FCC's C-Band spectrum Auction 107, with any remainder to be used first to redeem T-Mobile's 6.500% Senior Notes due 2026 and then for refinancing existing indebtedness on an ongoing basis. All other ratings including the company's Ba2 corporate family rating (CFR) and stable outlook are unchanged.Assignments:..Issuer: T-Mobile USA, Inc.....Senior Unsecured Regular Bond/Debenture, Assigned Ba3 (LGD4)RATINGS RATIONALET-Mobile's Ba2 CFR reflects the company's large scale of operations, extensive asset base and enhanced industry market position post its April 1, 2020 merger with Sprint Corporation (Sprint) which has resulted in the company exceeding AT&T Inc. (Baa2 stable) on a wireless subscriber basis to become the second largest nationwide wireless operator. T-Mobile is focused in the long term on improving leverage to below 4x (Moody's adjusted). The company's financial policy, which has historically focused on network infrastructure investments to support market share growth and incorporated a balanced and prudent approach to funding operating cash flow deficits, remains an important driver of the credit profile going forward. Moody's views network investments, including spectrum investments, as supportive of the business profile. T-Mobile's $10.5 billion all-in cost (including satellite operator clearing and incentive payments due in stages through 2024) for 40 MHz of mid-band spectrum won in the FCC's recently completed C-band auction will be debt-financed, but this is manageable within the current credit profile. While the amount the company invested in C-band spectrum trailed its nationwide wireless peers, T-Mobile will continue to operate with a significant capacity lead in the sub 6 GHz spectrum category for the next few years, and a smaller but still meaningful lead when Verizon Communications Inc. (Baa1 stable) is expected to receive the majority of its C-band licenses acquired in the auction at year-end 2023. Achievement of synergies associated with the multi-year integration of Sprint's wireless network into the legacy T-Mobile wireless network, including the successful migration of most of Sprint's customers to T-Mobile's network, is progressing ahead of schedule and will now result in higher run rate cost efficiencies than estimated at the time of the merger in April 2020; this progress remains a key driver of improving cash flow. Since the merger T-Mobile has continued to capture market share due to its focus on customer service, simple and innovative products, competitive price plans and enhancements to customer value.Moody's expects that T-Mobile's debt leverage (Moody's adjusted) will now peak in 2021, with the potential for declining closer to 4x by no later than year-end 2023 achievable under its current strategic operating path. Moody's expects T-Mobile's organic growth and progress on cost synergies will enable it to generate steady and increasing positive free cash flow within the next two to three years, which will likely be targeted to fund share buybacks. Moody's believes that the combination of T-Mobile and Sprint substantially improves the combined company's cost structure enabling it to remain competitive and to adequately invest in the combined network, including in future fiber and spectrum-based capacity enhancements to deliver evolving 5G technology applications while competing at discounted price points relative to its nationwide wireless peers. Increased operating scale now enables the company to better pursue opportunities in under-indexed markets, including in more rural markets and in the enterprise end market. In addition, T-Mobile could benefit from its affiliation with its controlling shareholder Deutsche Telekom AG (DT, Baa1 negative), although Moody's does not impute any credit support to the rating from DT.Moody's expects T-Mobile to maintain committed liquidity sufficient to address 12-18 months of total cash needs, including debt maturities. The company's ongoing and extensive refinancing actions post-merger demonstrate solid access to multiple segments of the debt capital markets. Moody's believes T-Mobile's strategic business plan is adequately funded for aggregated costs to achieve synergies and effect full integration of networks and operations. T-Mobile's liquidity is very good as reflected in the SGL-1 speculative grade liquidity rating and is supported by a currently undrawn $5.5 billion revolving credit facility and about $4.5 billion of cash as of December 31, 2020, pro forma for the company's $3 billion senior unsecured notes offering in January 2021 and net of its gross bid for C-band spectrum (before inclusion of satellite operator clearing and incentive payments).These strengths could be offset by a meaningful increase in business risk and a near term deterioration in operating cash flow as the costs to achieve synergies are incurred well ahead of the benefits. Moody's believes that the process of integrating T-Mobile's and Sprint's networks will remain the primary risk factor over the next 12 to 18 months that could negate the potential benefits of the business combination. If T-Mobile's network integration results in a deterioration in service quality as T-Mobile migrates Sprint customers to its network, churn would increase and the company would suffer damage to its newly defined brand and reputation operating as a combined company. The combined effects of increased churn and lower share of gross adds could pressure T-Mobile's revenue and cash flow. If sustained, a negative subscriber trajectory would undermine the confidence of investors and present future liquidity difficulties.The instrument ratings reflect the probability of default of T-Mobile, as reflected in the Ba2-PD probability of default rating, an average expected family recovery rate of 50% at default, and the loss given default (LGD) assessment of the debt instruments in the capital structure based on a priority of claims. The company's senior secured debt is rated Baa3 (LGD2) and has structural seniority provided by guarantees on a secured basis by all wholly-owned domestic restricted subsidiaries of T-Mobile and Sprint (subject to customary exceptions including for Sprint Spectrum special purpose vehicles), but the guarantees by Sprint, Sprint Communications, Inc. (SCI) and Sprint Capital Corporation (SCC) are unsecured due to secured debt restrictions in the Sprint senior note documents. The Baa3 senior secured rating reflects Moody's expectation that the mix of funded senior secured debt as a percentage of T-Mobile's total of funded senior secured debt plus funded senior unsecured debt will not exceed the mid-50% area for any extended period of time.T-Mobile's senior unsecured debt issued by T-Mobile entities is rated Ba3 (LGD4), reflecting its junior position in the capital structure and the proportion of senior secured debt in the capital structure. Senior unsecured debt issued by Sprint entities is rated B1 (LGD6). Senior unsecured debt issued by T-Mobile is guaranteed on an unsecured basis by all wholly-owned domestic restricted subsidiaries of T-Mobile and Sprint (subject to customary exceptions), but Sprint Spectrum special purpose vehicles (SPV) are designated as restricted non-guarantors. T-Mobile US, Inc. (T-Mobile US), parent of T-Mobile, T-Mobile and T-Mobile's wholly-owned domestic restricted subsidiaries (subject to customary exceptions) guarantee Sprint spectrum lease payments, out of which up to $3.5 billion is secured on a pari passu basis by the assets of the same entities whose assets are pledged to secure the senior secured debt held at T-Mobile. The senior unsecured notes at Sprint and Sprint's wholly-owned subsidiaries, SCI and SCC, receive downstream unsecured guarantees from T-Mobile US and T-Mobile. As Sprint is a subsidiary of T-Mobile, the lower rating of the senior unsecured notes issued by Sprint and its subsidiaries reflects the fact that these senior unsecured notes have guarantees from T-Mobile US and T-Mobile but not from their operating subsidiaries. As a result, Moody's ranks these obligations below the senior unsecured debt of T-Mobile in Moody's priority of claims waterfall.We include the entire amount of spectrum-backed notes issued by SPV in our waterfall analysis and we rank the spectrum-backed notes pari passu with T-Mobile's senior secured debt. Though these spectrum-backed notes are bankruptcy remote from T-Mobile, this treatment accounts for the diminished asset pool available to the senior secured debt holders due to the prior claim on spectrum assets.The stable outlook reflects T-Mobile's market share gains and meaningful margin expansion opportunities, which will benefit cash flow.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGST-Mobile's rating could be upgraded if leverage is on track to fall below 4.0x and free cash flow were to improve to the high single-digits percentage of total debt (all on a Moody's adjusted basis).Downward rating pressure could develop if T-Mobile's leverage is sustained above 4.5x or if free cash flow or liquidity deteriorates. This could occur if: (1) EBITDA margins come under sustained pressure, (2) future debt-funded spectrum purchases significantly exceed our expectations, (3) the company prioritizes aggressive share repurchases over network investments, or (4) the company's operating environment sustainably deteriorates due to competitive or other factors. In addition, an increase in the proportion of senior secured debt in the capital structure could pressure the senior secured rating downward.The principal methodology used in these ratings was Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.With headquarters in Bellevue, Washington, T-Mobile USA, Inc. (T-Mobile) provides mobile communications services under the T-Mobile and Metro by T-Mobile brands in the US, Puerto Rico and the US Virgin Islands. Following the merger of its parent, T-Mobile US, Inc., with Sprint Corporation on April 1, 2020, T-Mobile now operates with 102.1 million subscribers as of December 31, 2020. DT owns an approximate 43.4% stake in T-Mobile's parent, T-Mobile US, Inc., but consolidates the T-Mobile parent and subsidiaries by virtue of its voting control over approximately 52.3% of the T-Mobile parent as of December 31, 2020.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Neil Mack, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lenny J. Ajzenman Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​