The cost to insure Softbank’s debt against non-payment climbed 136 basis points to 307 basis points as of 3:30 p.m. on Oct. 12 in Tokyo, the highest since Jan. 16, according to data provider CMA.
The spread on Softbank’s 45 billion yen of 1.1 percent bonds due 2016 relative to government debt jumped 98.1 basis points as of 5:11 p.m. in Tokyo on Oct. 12 to 139.9, its highest since issuance, according to Japan Securities Dealers Association prices on Bloomberg.
Standard & Poor’s Ratings Services placed its BBB long-term corporate credit and senior unsecured debt ratings of Softbank on creditwatch with negative implications because of possible investment in Sprint Nextel.
“The transaction, if it proceeds, may undermine Softbank’s financial risk profile, in our view,” S&P said in the statement. Regardless of how the company finances the potential investment, Sprint’s “significantly weaker” financial risk profile may materially undermine Softbank’s financial risk profile, it said.
Sprint and Softbank are still negotiating over price, said one of the people familiar with the matter. While a price of about $6.50 per share for Sprint has been discussed, no specific price has yet been reached, the person said.
Softbank’s investment in Sprint would include buying out some holders of publicly traded Sprint shares and supplying Sprint directly with capital, one person said. Sprint could use the capital to build its LTE network, the person said.
Sprint started service using the faster technology called LTE, or long-term evolution, in July in Atlanta, Dallas, Houston, San Antonio and Kansas City, with plans to add more this year to catch up with its larger competitors. Verizon Wireless, which had a one-year head start on the upgrades, has the service in about 340.
Softbank is working with lenders on how much it will need to borrow for the deal, trying to minimize how much its credit rating may be downgraded, said one of the people familiar with the matter. Moody’s Investors Service upgraded Softbank’s debt to investment grade last year, and Standard & Poor’s rates it two levels above investment grade after an upgrade in January. Both have junk ratings on Sprint debt.