Sprint set for $1.2B cash injection from newly formed entity
Sprint released details of its highly anticipated device leasing division, which it formed with parent company SoftBank and will operate under the Mobile Leasing Solutions name.
The division will be tasked with handling the financial aspects of Sprint’s device leasing program in which the carrier provides devices to consumers for a monthly fee over a fixed term before exchanging that device for a new model.
Sprint said the leasing division is set to provide the carrier with approximately $1.1 billion in cash proceeds at closing, which are part of an approximately $1.2 billion in total considerations expected to be exchanged for $1.3 billion of leased device assets from Sprint. The carrier said the first bucket of deferred payments would include higher end handsets that are most likely to maintain their value through the leasing period and thus have the lowest associated financial risk. Additional transfers are expected to happen on a quarterly basis.
The transaction is scheduled to close early next month, with Sprint noting the cash infusion will come in below costs associated with “alternatives in the high-yield debt market.” Sprint said it is also boosting its existing receivables facility by $1 billion to a total of $4.3 billion related to the sale of future lease receivables to Mobile Leasing Solutions.
Investors in the Mobile Leasing Solutions operation include SoftBank and “several lenders including international banks and leasing companies.” Operational partners include SoftBank’s Brightstar device logistics division, which was founded by current Sprint CEO Marcelo Claure before being purchased by SoftBank, and will provide its lease management and tracking system as well as provide reverse logistics and device “remarketing” services. Those services are set to include a forward purchase agreement with Foxconn, which Sprint said will help minimize the “downside risk of future changes in device residual values.”
“Sprint and SoftBank have worked together to create a unique structure that advances a very high percentage of the total value of certain devices leased to our customers, including the device residual values,” explained Sprint CFO Tarek Robbiati. “Providing mobile devices to customers is the biggest use of cash in the carrier model and with this new structure we have more closely aligned Sprint’s cash flows with those associated with leasing devices to our customers.”
Coming out of the announcement, Sprint cut its fiscal year 2015 adjusted earnings before interest, taxes, depreciation and amortization from a range of $7.2 billion to $7.6 billion to a new forecast of between $6.8 billion and $7.1 billion.
Investors appeared unimpressed with the move, with Sprint’s stock (S) trading down more than 3% early Friday, while the broader New York Stock Exchange was trading up nearly 1%.
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