Sprint Corp. is paying above-market interest rates on new notesto become the leading issuer of U.S. junk bonds this year as itseeks to fund an expansion of the country's third-largest wirelessnetwork.

Sprint raised $2.5 billion Monday with securities due in June2024 paying a coupon of 7.125 percent, 66 basis points more thanthe average yield for similar-maturity debt in the B credit ratingtier, according to data compiled by Bloomberg. The sale adds toSprint's more than $12 billion of issuance in the past 24 months tolead speculative-grade borrowers during two years of record annualofferings of at least $350 billion.

Enticing bond investors with higher-than-average coupons mayhelp the Overland Park, Kansas-based company finance capitalexpenditures that are growing at a faster pace than AT&T Inc.and Verizon Communications Inc. Monday's sale followed a $6.5billion offering in September that ranked as the biggest high-yieldissue since 2008.

“Sprint has a lot of funding needs and has been undertaking alot of capex,” said Scott Kimball, a fixed-income manager at TaplinCanida & Habacht LLC, a BMO Financial Group unit that oversees$8 billion and doesn't own Sprint bonds. “The supply is reflectiveof their own needs rather than investor demand.”

Average yields on junk bonds in the Bloomberg USD High YieldCorporate Bond Index have fallen to 5.88 percent from 6.55 percentat the time of the previous sale.

Majority ownership of Sprint was purchased by SoftBank Corp. inJuly for $21.6 billion, and the company has said it plans to spend$8 billion on network upgrades as it races to catch up with thelarger AT&T and Verizon.

Softbank, the Japanese company founded by billionaire MasayoshiSon, owns stakes in more than 1,000 Internet businesses and is thethird-largest mobile provider by sales in Japan behind NTT DocomoInc. and KDDI Corp., according to data compiled by BloombergIndustries.

Sprint has since issued more than the $8.1 billion borrowed byT-Mobile USA Inc. this year, aided by the Federal Reserve's policyof suppressing interest rates to support economic growth. The newSprint bonds, which follow $362.5 billion of high-yield, high-riskissuance through last week, are ranked B1 at Moody's InvestorsService and BB- by Standard & Poor's.

“Sprint has had seemingly endless access to the high-yieldmarket and has consistently taken advantage of investor demand,”Scott Dinsdale, an analyst at KDP Investment Advisors Inc., wrotein a report yesterday.

Ratings Disadvantage

Scott Sloat, a Sprint spokesman, declined to comment on thecompany's finances. Proceeds may be used to retire or serviceoutstanding obligations and to expand and modernize its network,the company said in a regulatory filing yesterday.

Sprint's junk rating leaves it with higher borrowing costs thaninvestment-grade AT&T and Verizon, the latter of which issued arecord $49 billion of bonds in September and paid 6.55 percent toborrow for 30 years. Sprint had an average weighted coupon of 7.78percent before Monday's sale, compared with 4.47 percent atAT&T and 5.49 percent for Verizon.

The phone company that started offering local service inAbilene, Kansas, in 1899 lost 5 percent of its contract wirelesssubscribers in the year ended June 30, Bloomberg data show. ItsNorth American market share declined to 12 percent last year frommore than 18 percent in 2006.

Junk, or speculative-grade, bonds are rated below Baa3 byMoody's and BBB- at S&P. A basis point is 0.01 percentagepoint.

Sprint is betting the spectrum acquired in its July takeover ofmobile broadband company Clearwire Corp. will help the companyblanket the largest U.S. cities with a high-speed network fordelivery of mobile video and streaming music.

Refitting with that technology under the project name Spark hasled analysts surveyed by Bloomberg to estimate that Sprint willburn through $4.3 billion of cash in the next 12 months whileVerizon and AT&T are together poised to generate about $26billion of free cash that can be used for reinvestment, debtrepurchases, or shareholder rewards such as dividends andbuybacks.

“The concern is that you're spending all this money in anindustry that's dominated by two large and more well-capitalizedcompetitors,” said Marc Gross, a New York-based money manager at RSInvestments, which bought the new bonds. “The question is, willthey be able to drive customer growth?”

While Sprint has valuable spectrum assets and the implicitsupport of Softbank, the business is burdened by high leverage,weak margins and a cash burn that will probably continue through2015, Moody's analysts wrote in a report yesterday. Sprint's $32.4billion of long-term debt on Sept. 30 accounted for almost 37percent of its assets, compared with a ratio of 33 percent atVerizon and 25 percent at AT&T, Bloomberg data show.

“Near flawless execution across all aspects of the business,including the requirement to quickly redesign and modernize itsentire network, will be necessary before Sprint can hope to growits market share in the brutally competitive U.S. wirelessindustry,” the Moody's analysts wrote.

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