Sprint cancels $3 billion convertible sale

Karen Brettell and Sinead Carew

NEW YORK (Reuters) - Sprint Nextel Corp (S.N), the No. 3 mobile phone service, canceled its $3 billion convertible sale a day after announcing it, saying the terms being offered were not favorable for a deal.

News of the planned financing sent Sprint shares down 14 percent on Wednesday as investors were unhappy at the prospect of a new issue diluting the value of the already deflated stock.

The company said it decided to cancel the sale, which had been led by Deutsche Bank AG (DBKGn.DE) , Goldman Sachs Group Inc (GS.N), JP Morgan and Citigroup Global Markets (C.N), because the "terms being offered were not economically attractive."

"We had attempted this placement because we anticipated that it would allow us an opportunity to accelerate the payment of our debt, but the conditions turned out not to be favorable," said Sprint spokesman James Fisher.

The cancellation is another sign that companies are increasingly challenged to raise capital at affordable rates as banks reduce their corporate exposures and investors demand higher premiums to take on their debt.

Sprint's debt weakened on the news and its 6 percent bond due in 2016 widened 42 basis points to 4.46 percentage points over U.S. Treasuries. The debt costs have jumped from around 3 percent at the beginning of 2008 and less than 2 percent last summer, according to MarketAxess.

But Sprint shares rose 6 percent as investors, who have seen the stock fall as much as 70 percent since its 2005 purchase of Nextel Communications, heaved a sigh of relief.

The company said the move did not change its outlook.