Having decided that only the strong will survive in telecom, investors are abandoning everything that shows any weakness. And suddenly trusty old Sprint ( FON) is starting to hear more than pins drop.

So far this year we've seen WorldCom ( WCOM) and then Qwest ( Q) dive 50%. The onetime investor favorites have been haunted by the effects, real and imagined, of a triple witching of feared accounting abuses, looming cash shortfalls and possible debt downgrades. In the wake of the Enron and Global Crossing fiascoes, the accounting worries have earned the headlines.

But this week's turmoil among telecom stocks has some investors reassessing that assumption. The latest victim of the telecom panic is Sprint, operator of a big long-distance service, a smaller but still substantial local phone operation and a large wireless network. Unlike Qwest or Global Crossing, whose aggressive accounting was drawing attention on Wall Street even before the Enron scandal spun Wall Street into a disclosure frenzy, Sprint has never been linked to tricky bookkeeping or revenue-enhancing network capacity swaps.

Yet the stock has dropped some 35% over a month and a half amid worries about Sprint's ability to meet onerous short-term debt payments. That fact leads some investors to suggest that the Street's focus is turning from pure accounting questions to the matter of which companies may have trouble maintaining their liquidity -- regardless of who gets tarred in the process.

"Everything with leverage is being sold, with little concern for value," says buy-side analyst Eric Brock with Clough Capital Partners. Sprint was off 18 cents at $12.72 Wednesday, putting it just above a 52-week low.

Ears Ringing
Sprint feels the pain

The panic selling has sucked Sprint into its wake. Like its peers, the No. 3 long distance company has seen its sales dip -- roughly 9% last quarter from year-ago levels. All the long-distance players, and to a slightly lesser degree everyone in the entire sputtering telecom business, have suffered from the erosion of this still-profitable franchise.

That said, the main concern hanging over Sprint is the enormous amount of short-term debt it must roll over this year.

As Gimme Credit debt analyst Carol Levenson pointed out in a report Wednesday, Sprint has at least $5 billion in short-term debt, and about $5 billion in bank credit lines to back up those loans. Sprint has at least another $4 billion it could borrow if need be, without violating its debt covenants, says Levenson. Sprint will need to borrow between $1.7 billion and $2 billion to fund operations this year, by Levenson's estimation.

Heavy D
Telecom firms saddled with big debt loads
Company Net debt
($billions)*
2001 revenue ($billions) 2002 stock movement
Sprint (FON:NYSE) $21.4 $26 -35%
WorldCom (WCOM:Nasdaq) 16.2 21.3 -55
Qwest (Q:NYSE) 24.4 19.7 -49
Verizon (VZ:NYSE) 62.2 67.2 -5
SBC (SBC:NYSE) 24.8 54.3 -8
*As of Sept. 30.
Source: SEC filings

Under normal market conditions, securing that kind of loan would be a minor hurdle for a company of Sprint's caliber. But as investors and analysts point out, thanks to the scandals associated with the collapse of Enron and Global Crossing, these are hardly normal times. And banks that just a year ago could have been accused of never saying no to big borrowers are suddenly on the defensive and looking to cut their exposure to risky loans.

Sprint said as recently as Tuesday that it has no plans to draw down money from its credit line.

But investors aren't necessarily willing to believe that. Nor do they have much faith that the big banks will be there to lean on if the commercial paper market turns frosty on outfits like Sprint.

"The large commercial banks of the world are not going to be able to vouch for everyone's liquidity," says Clough's Brock, whose firm has no positions in Sprint, Qwest or WorldCom. "We are stepping out of the way for now, because it's unclear what developments can turn the tide."

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