Research Update: Deutsche Telekom AG Downgraded To 'BBB' From 'BBB+' On Sprint Acquisition's Completion; Off Watch

On April 1, 2020, German telecom operator Deutsche Telekom AG's (DT's) subsidiary, U.S. wireless carrier T-Mobile U.S., closed its acquisition of Sprint Corp. in an all-stock transaction for $26 billion. Although we predict long-term benefits for DT's market and spectrum positions in the U.S., we see integration risks, subdued free operating cash flow (FOCF) from heavy integration costs, and materially higher leverage for the foreseeable future. We foresee credits metrics materially weakening in 2020 and only gradually recovering thereafter, including pro forma S&P Global Ratings-adjusted debt to EBITDA shooting up to about 3.8x in 2020, from about 3.0x in 2019. We are therefore lowering our long-term issuer credit ratings on DT, and its fully owned financing subsidiary Deutsche Telekom International

...- On April 1, 2020, German telecom operator Deutsche Telekom AG's (DT's) subsidiary, U.S. wireless carrier T-Mobile U.S., closed its acquisition of Sprint Corp. in an all-stock transaction for $26 billion. - Although we predict long-term benefits for DT's market and spectrum positions in the U.S., we see integration risks, subdued free operating cash flow (FOCF) from heavy integration costs, and materially higher leverage for the foreseeable future. - We foresee credits metrics materially weakening in 2020 and only gradually recovering thereafter, including pro forma S&P Global Ratings-adjusted debt to EBITDA shooting up to about 3.8x in 2020, from about 3.0x in 2019. - We are therefore lowering our long-term issuer credit ratings on DT, and its fully owned financing subsidiary Deutsche Telekom International Finance B.V., and the issue ratings on the company, to '###' from '###+' and removing them from CreditWatch, where they were placed with negative implications April 29, 2018. - The...

Research Update