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Sprint Lenders Waive Leverage Test to Avoid Covenant Violation

Sprint Corp. lenders agreed to waive a quarterly leverage test until Dec. 31, following the third-largest U.S. mobile phone carrier’s debt sale this month that threatened to trigger a loan default.

Sprint, which also obtained similar agreements for its revolving credit facility and a Canadian loan, has now received all “necessary waivers” from lenders, the Overland Park, Kansas-based company said in a statement today. Its $6.5 billion bond sale would have breached the terms of its loans “by a significant level” at the end of the month, according to a Sept. 4 regulatory filing.

The company had about $1.9 billion of borrowings outstanding linked to the loans on June 30, including $913 million letters of credit under the revolver, when its debt was 4.2 times earnings before interest, taxes, depreciation and amortization, according to an Aug. 5 regulatory filing. Terms of the loan prohibit the leverage ratio from exceeding 6.25 times.

Sprint completed the biggest junk-bond offering since 2008 with its sale at lower relative yields than it paid a year ago after an investment from Softbank Corp., a company three times the size of the U.S. unit. Sprint investors approved the $21.6 billion deal in June, giving Tokyo-based Softbank control of the carrier.

Sprint issued $4.25 billion of 7.875 percent, 10-year bonds that paid 498 basis points, or 4.98 percentage points, more than similar-maturity Treasuries and $2.25 billion of 7.25 percent securities due in 2021 at 466 basis points over benchmarks, according to data compiled by Bloomberg. Both spreads are narrower than a year ago, when the carrier paid 568 basis points more than Treasuries to borrow $1.5 billion for eight years.

The notes due in 2023 were quoted at 103.8 cents on the dollar today to yield 7.33 percent, Bloomberg prices show.

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