- Tower equipment is used as collateral to raise new loans
- New finance entity will be consolidated into Sprint's books
Sprint Corp. will sell and lease back network equipment, getting $2.2 billion the wireless company can use to repay maturing debt and continue its turnaround efforts.
The assets -- mainly equipment at cell towers -- will be sold to Network LeaseCo, a new entity backed by Sprint’s parent company, SoftBank Group Corp., and other investors, according to a statement Wednesday.
The proceeds, to be paid back in unequal installments through January 2018, give the money-losing Sprint breathing room to meet debt maturities and invest in new network technology. The company, 83 percent owned by SoftBank, had about $6 billion in liquidity at the end of 2015. It has $2.3 billion in debt to either repay or refinance this year and almost $12 billion over the next five years. More such deals could be coming.
“We don’t think this is a particularly impressive transaction but see it as one of many tools that Sprint can use to remain solvent for at least the next 2-plus years while it works to stabilize the company and try to return to growth,” Phil Cusick, a JPMorgan Chase & Co. analyst, said Wednesday in an e-mail.
Sprint will pay a mid-single digit rate for the funding, an attractive rate for the company, according to the statement. For accounting purposes, Network LeaseCo will be part of Sprint’s consolidated financials, meaning the wireless company’s books will reflect the cash proceeds and the underlying debt. SoftBank created a phone-leasing company last year to help Sprint raise $1.2 billion.
“This transaction is an important first step in addressing upcoming debt maturities and allows us to stay focused on our corporate transformation, which involves growing topline revenues and aggressively taking costs out of the business to improve operating cash flow,” Tarek Robbiati, Sprint’s chief financial officer, said in the statement.
The assets being sold have a net book value of about $3 billion, Sprint said.
The size of the deal, at $2.2 billion, was smaller than the $3 billion to $5 billion some analysts were expecting. The duration, at less than two years, was also shorter than some anticipated.
“We would expect future tranches of debt to be of longer duration,” Cusick wrote.
Sprint, which has booked more than seven years of losses and has $34 billion in debt, has been the most aggressive price cutter among the four nationwide carriers, offering promotions such as $1 iPhones and monthly rates that are half what other carriers charge.
The price cuts highlight a go-for-broke strategy by Chief Executive Officer Marcelo Claure, who is trying to cut costs while improving Sprint’s network and adding customers in a maturing wireless market.
Sprint shares gained 2.8 percent to $3.67 in late trading. The shares had lost less than 1 percent this year through Wednesday’s close.