Subject: [NEXTEL-1] US CREDIT-Nextel may soon emerge from junk status

From: NEXTEL-1
Date: Mon, 19 Jul 2004 20:11:55 -0400

US CREDIT-Nextel may soon emerge from junk status
Mon Jul 19, 2004 06:00 PM ET

By Eric Burroughs
NEW YORK, July 19 (Reuters) - After its second-quarter earnings results
this week, Nextel Communications should be one step closer to receiving
the investment-grade status that traders and investors say it has
deserved for a while.

Nextel's popular cell phones with their walkie talkie-like feature have
helped lure and retain customers while boosting the company's revenue
and free cash flow in recent quarters, giving its balance sheet a nice
polish.

While Nextel's (NXTL.O: Quote, Profile, Research) credit ratings have
been repeatedly upped as a result, it's been a long trek to get back to
investment-grade territory -- even as credit markets have treated it as
such for much of the year.

In fact, Nextel's five-year credit spreads trade at half the levels of
struggling telecom grandma AT&T (T.N: Quote, Profile, Research) , which
is increasingly seen as being cut to junk territory perhaps as soon as
the release of its latest earnings this week.

One credit derivatives trader at a U.S. investment bank said Nextel
"already trades like a high-grade telecom credit."

The big improvement in Nextel's credit quality has been undeniable. Net
income in the first quarter more than doubled compared with 2003, even
while its cash and cash equivalent balance increased to $2.7 billion
from $2 billion. Free cash flow is expected in the area of $1.7 billion,
against roughly $12 billion of debt.

Expectations are for Nextel's second-quarter earnings, to be released on
Wednesday, to post another hefty gain.

All major ratings agencies have Nextel in upper junk territory with
positive outlooks, meaning a ratings upgrade to investment-grade could
be around the corner, possibly first from Standard & Poor's, traders
said.

S&P last hiked Nextel's rating to the highest possible junk rating in
March and is more likely to give it a lift to investment-grade. Fitch
Ratings upgraded the rating to just one step below investment-grade
almost a month ago, while Moody's Investors Service took the rating to
the third-highest junk level just two weeks ago.

Two weeks ago federal communications regulators approved a plan that
would require the company to spend about $3.2 billion for next band
spectrum and relinquish current bands it uses that are increasingly
interfering with police and rescue communications.

Nextel is studying the details of the so-called Consensus Plan but is
widely expected to accept it, using a new $4 billion revolving line of
credit both to pay for the plan and boost liquidity even more.

Moody's said its positive ratings outlook reflects that the Consensus
Plan unfolds as expected and that if Nextel "establishes a track record
of successful execution under the plan, the ratings could be upgraded
further."

In the credit derivatives market, Nextel's five-year credit default
swaps trade around 150 basis points, or $150,000 a year for default
protection on $10 million of debt. That compares with AT&T's five-year
spread of around 300 basis points.
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=5710028

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