Research Update: Deutsche Telekom AG 'BBB+' Ratings Placed On CreditWatch Negative On Agreement To Buy Sprint Corp.

On April 29, 2018, German incumbent telecom operator Deutsche Telekom AG (DT) announced that its subsidiary T-Mobile U.S. had agreed to acquire U.S. mobile operator Sprint Corp. in a stock-for-stock transaction. Although we predict long-term benefits for DT's market and spectrum positions in the U.S., we see integration risk and substantial integration costs that will result in subdued free operating cash flow and materially higher leverage in the first two years after closing. We are therefore placing our 'BBB+' long-term ratings on DT on CreditWatch negative. The CreditWatch placement indicates that a one-notch downgrade is likely if the acquisition closes in the absence of operating performance significantly ahead of our base case and other material leverage-reduction measures. On April 29,

...+ On April 29, 2018, German incumbent telecom operator Deutsche Telekom AG (DT) announced that its subsidiary T-Mobile U.S. had agreed to acquire U.S. mobile operator Sprint Corp. in a stock-for-stock transaction. + Although we predict long-term benefits for DT's market and spectrum positions in the U.S., we see integration risk and substantial integration costs that will result in subdued free operating cash flow and materially higher leverage in the first two years after closing. + We are therefore placing our '###+' long-term ratings on DT on CreditWatch negative. + The CreditWatch placement indicates that a one-notch downgrade is likely if the acquisition closes in the absence of operating performance significantly ahead of our base case and other material leverage-reduction measures....

Research Update