Fitch Ratings has affirmed the 2018-1 notes issued by Sprint Spectrum Co LLC (the Master Issuer), Sprint Spectrum Co II LLC (Co-Issuer II) and Sprint Spectrum Co III LLC (Co-Issuer III) at 'A'.

As per Fitch's Sprint Spectrum Securitization Bespoke Rating Criteria, for investment grade rated entities with a going concern (GC) score of '2' and affirmation factor of 'High' the maximum uplift achieved on a probability of default (PD) basis is two notches. Therefore, Fitch has affirmed the Sprint Spectrum securitization notes at 'A'/Stable.

RATING ACTIONS

Entity / Debt

Rating

Prior

Sprint Spectrum Securitization

Series 2018-1 Class A1 85208NAD2

LT

A

Affirmed

A

Series 2018-1 Class A2 85208NAE0

LT

A

Affirmed

A

Page

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VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The transaction is backed by hell-or-high water lease payment obligations from Sprint Communications LLC (SCL), which in turn is guaranteed by T-Mobile US, Inc., T-Mobile USA, Inc. (T-Mobile USA, BBB+), certain subsidiaries of T-Mobile USA, Sprint Corporation, and all of SCL's subsidiaries that guarantee the existing credit agreements. As part of the financing structure, the wireless spectrum licenses that give right to the lease payments are contributed to wholly owned subsidiaries of the issuing entity (true sale). The financing is collateralized by a pledge of the equity of the license holding entities and certain transaction accounts. Notes are rated to timely payment of interest and ultimate payment of principal by the legal maturity date.

The rating on the notes reflect SCL's Long-Term Issuer Default Rating (IDR) of 'BBB+', Going Concern Assessment (GCA) score of GC2, and Affirmation Factor of High (indicating the likelihood of the company's affirmation of the related lease obligations following a bankruptcy filing). The rating also reflects SCL's 18-month liquidity facility and recovery prospects. This translates into a PD assessment of 'A'.

KEY RATING DRIVERS

Credit Quality of the Lessee: Cash flows backing the transaction will come from hell-or-high-water lease payment obligations from SCL (the lessee). The IDR of the lessee, which acts as the starting point for the analysis, is 'BBB+' with a Stable Outlook. The lease payment obligations from SCL are guaranteed by T-Mobile USA and certain subsidiaries of T-Mobile USA as well as Sprint Corporation and all of SCL's subsidiaries that guarantee the existing credit agreements.

Performance Risk and GCA Score: Timely payment on the bonds may depend on the ongoing performance of SCL as the lessee and T-Mobile as guarantor. SCL/T-Mobile's GC score of 2, which acts as a cap for the assessment of T-Mobile continuing to operate, could allow for a four-notch differential between the T-Mobile IDR and the issuance probability of default (PD) rating; however, uplift is tempered to two notches in this case for investment grade-rated originating entities.

Strategic Nature of the Assets: The affirmation factor is considered high by Fitch. This assessment is supported by the strategic importance of the 2.5 GHz spectrum to the lessee and T-Mobile's operations due to the successful integration of this spectrum into the combined T-Mobile's 5G infrastructure. After the merger, the 2.5 GHz spectrum became a central part of the T-Mobile Ultra Capacity 5G Network and 1.9GHz spectrum became crucial to the 4G network. The assessment of High allows the transaction to obtain a two-notch maximum uplift from SCL/T-Mobile's IDR, which is commensurate with the GC 2 score.

Asset Isolation and Legal Structure: Notes define default as occurring when an interest payment is missed (after the expiration of the five-day grace period) or in the event that full principal is not repaid at legal final maturity. The proposed structure also contemplates events, such as lease payment default and certain manager termination events, in which the investors can dispose of the collateral before an event of default is declared. The trust structure used allows creditors to gain access to the collateral in the case of a collateral disposition event. These elements not only may increase overall recovery but also increase the willingness of the lessee to meet the monthly lease payments on a timely basis.

Backup Manager Role: In Fitch's view the role of Midland (backup manager), a division of PNC Bank, N.A. ('A+'/Stable), as backup servicer and control party provides additional protections and safeguards related to the collateral. Given Sprint/T-Mobile's role as the manager of the collateral, the backup manager protects investors from misaligned incentives. In addition to day-to-day oversight, the backup manager plays a key role related to the foreclosure process, in an event of a manager replacement it will direct sale of the business and/or liquidation of collateral, with approval of controlling class representative.

Recovery Analysis: While sales proceeds are expected to be sufficient to repay all outstanding debt, even significantly stressed recovery levels would generate a high level of recovery on the notes. Fitch ran several stressed assumptions on the valuation with recoveries deemed outstanding (greater than 200%) in all of the scenarios. As SCL/T-Mobile are investment grade entities, the visibility into recovery prospects is far removed. Therefore, Fitch does not provide recovery benefit for transactions that achieve A category ratings from the PD assessment.

Liquidity Facility in Place: The transaction benefits from an 18-month liquidity facility in the form of a cash reserve. This facility can be used if there is any disruption in lease payments during a Sprint bankruptcy or reorganization process. Additionally, the liquidity will be used in the case of lease rejection by Sprint/T-Mobile to meet timely interest payments during the foreclosure, re-marketing and sales process.

Maximum Uplift for Investment Grade Lessees: The aggregate uplift from PD assessments is limited to two notches for lessees with an investment grade IDR (SCL rated 'BBB+') the transaction is at its maximum uplift potential at 'A'.

ESG - Rule of Law, Institutional and Regulatory Quality: The transaction's collateral value is exposed to regulatory oversight. The collateral value can vary based on the regulatory framework in-place. Changes in the regulatory regime/framework may lead to diminished collateral value estimates, and Fitch's recovery approach is highly dependent on this factor.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

The rating is sensitive to changes in the credit quality of SCL. Additionally, a change in the going concern score, affirmation factor, or Fitch's adjusted valuation of the collateral that would result in a reduction of the recovery prospect estimations may lead to a rating downgrade.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

The current criteria aggregate uplift from PD assessments and recovery analysis is limited to two notches for lessees with an investment grade IDR starting point. Therefore, a change in the IDR of Sprint Communications LLC could lead to a change on the rating of the notes.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

This rating is directly linked to SCL as the corporate IDR is the starting place for the analysis. This linkage is discussed in the first KRD of the bespoke criteria.

ESG Considerations

Sprint Spectrum Securitization has an ESG Relevance Score of '5' for Rule of Law, Institutional and Regulatory Quality due to collateral value being exposed to regulatory oversight, which has a negative impact on the credit profile, and is highly relevant to the rating, limiting the notching differential from the rating of the originator.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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