Bonds of Sprint Nextel Corp. rose after Softbank Corp. agreed to pay $20.1 billion to acquire about a 70 percent stake in the U.S. wireless carrier.
Sprint’s $2.48 billion of 6.875 percent debt maturing in 2028 gained 5.25 cents to 107 cents on the dollar, yielding 6.18 percent at 9:19 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds earlier touched 108 cents, the highest since March 2006.
Softbank will pay $12.1 billion to Sprint shareholders, and the deal includes $8 billion of new capital, according to a statement today. That should bolster the balance sheet of Overland Park, Kansas-based Sprint, whose debt at 4.18 times its earnings before interest, taxes, depreciation and amortization is higher than the industry average of 3.6 times for U.S. telecommunications companies with more than $1 billion of debt.
“Sprint has been more highly-levered compared to other U.S. telecoms, so any way to decrease debt should be a positive for the name,” Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, wrote today in a report. “Softbank is using Sprint to enter the U.S. market in a big way.”
The yield on Sprint’s 6.875 percent bond narrowed to 335 basis points more than similar-maturity Treasuries, down from 489 on Oct. 10, a day before Sprint confirmed it was in talks with Softbank for a “substantial investment.”
Softbank also plans to invest $3.1 billion in 1 percent convertible bonds due in seven years that Sprint will issue as part of the deal, according to the statement. The new debt will be convertible into Sprint common stock at $5.25 per share, below last week’s closing price of $5.73.