Photographer: Daniel Acker/Bloomberg

Sprint’s Plan to Mortgage Its Airwaves

A network-leasing unit is the latest bailout plan.

As Sprint nears an eighth straight year in the red, the mobile operator is carrying $34 billion in debt—more than twice its market value. Chairman Masayoshi Son, whose uber-carrier SoftBank took control of Sprint in 2013, has a plan to start paying off those debts. It’s a little like borrowing against the tires to make car payments.

According to Sprint Chief Financial Officer Tarek Robbiati, the proposal is to create another subsidiary of Son’s Japanese corporation that will lend Sprint money. The new unit plans to accept the carrier’s wireless equipment and some of its rights to slices of the wireless spectrum as collateral. Sprint says that while it won’t give up control of those precious airwaves—worth more than $115 billion, according to Bloomberg Intelligence—it’s aiming for $3 billion to $5 billion this year from these loans.

“Spectrum is one of the most valuable assets they have,” says Dave Novosel, an analyst with Gimme Credit. “It gives them something to be measured on, since Sprint can’t be measured on cash flow.”

Using spectrum as collateral is a rare move, which suggests Sprint is running out of short-term options in an unfavorable high-yield bond market. It has to make $2.3 billion in debt payments this year, a warmup for $10 billion coming due by the end of 2020. “This is setting up to be a game of chicken between Masa and the high-yield market,” says Chris Ucko, an analyst with bond researcher CreditSights.

To buy time, Son has been hunting for assets he can borrow against. In November another SoftBank subsidiary paid Sprint $1.2 billion for much of Sprint’s phone inventory. (It’s leasing the phones back.) Spectrum may be the one asset more important than the phones themselves.

Sprint owns the largest piece of high-frequency, 2.5-gigahertz spectrum in the U.S. It’s been promising for years that with enough infrastructure behind them, the airwaves could create America’s fastest wireless network. Chief Technology Officer John Saw calls that bit of spectrum the “crown jewel.”

Pending a big investment in its network, Sprint has focused on undercutting rivals Verizon and AT&T. By lowering data fees and liberally using half-off promotions, it added net subscribers last year for the first time since 2008. To keep them, though, Sprint will have to fix its network, says BTIG analyst Walt Piecyk.

In October the company announced a $2.5 billion round of cost-cutting, which has helped it boost cash and cash equivalents about 12 percent, to $2.2 billion. That’s still about half what it was a year earlier.

Analysts expect Sprint to report a net loss of $1.5 billion for its fiscal year ending in March. Standard & Poor’s cut the company’s credit rating one level, to B, on Feb. 2, citing “intense competition.” Moody’s Investors Service downgraded Sprint to a high-risk B3 in September.

“I don’t think Sprint will go belly-up. Masa would probably be there to bail them out,” says Roger Entner, an analyst with researcher Recon Analytics. “But it shows what kind of bind Sprint is in, when you have to collateralize the plates and silverware.”

The bottom line: Sprint is planning to use its network gear and some spectrum assets as collateral to cover its debts.

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