Sprint and parent company SoftBank set up a separate entity to purchase $2.2B in network equipment in move to lower funding concerns
Sprint and parent company SoftBank moved on previously announced plans to set up a separate entity designed to acquire Sprint network assets for $2.2 billion, and then lease those assets back to the carrier. The deal is said to allow Sprint to meet upcoming debt maturities, which published reports indicated included $34 billion in outstanding debt, which is more than twice its current market capitalization, and the need to meet $2.3 billion in debt payments this year.
The entity, labeled Network LeaseCo, is described as “several bankruptcy remote entities” that plans on closing an acquisition of “certain existing network assets” next week. Network LeaseCo will use those assets as collateral in its plans to collect the $2.2 billion from external investors, including SoftBank, with plans to then transfer those funds to the carrier “in staggered, unequal payments through January 2018.”
The network assets are said to have a value of approximately $3 billion, and include primarily equipment located at cell towers. The deal is expected to improve the carrier’s “liquidity position at an attractive cost of capital in the mid-single digits.” Sprint said it had $6 billion in total liquidity at the end of last year, with $600 million still available under vendor financing agreements tied towards the purchase of 2.5 GHz network equipment.
“Sprint and SoftBank have worked together again to create a unique structure that provides Sprint with an attractive source of capital,” explained Sprint CFO Tarek Robbiati. “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 top line revenues and aggressively taking costs out of the business to improve operating cash flows.”
The Network LeaseCo financials will be included in the carrier’s consolidated reporting and continue to be depreciated, and Sprint will record interest expenses incurred in connection with the Network LeaseCo debt. The leasing entity at this point does not include any spectrum assets, which some had predicted Sprint could use as collateral for additional funding needs.
Sprint earlier this year said it was working with SoftBank in setting up a “network-related financing entity” that will use network equipment and spectrum as collateral to provide up to $5 billion in 2016 funding. The first round of funding from the entity was expected to close by mid-year.
The move is similar to the device-focused Mobile Leasing Solutions subsidiary created late last year 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 has said it was looking to trim $2.5 billion in spending this year, with reports suggesting the carrier was looking to reconfigure its network architecture in an attempt to meet its target.
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