In its latest creative financing move, Sprint said Wednesday it plans to raise $3.5 billion by selling debt backed by about 14% of its wireless airwaves.
The cash-poor No. 4 U.S. wireless carrier has previously used its handsets and some of its wireless network equipment as collateral to raise more than $3.4 billion as it seeks to compete with larger peers such as Verizon and AT&T.
Sprint, which is majority owned by Japan’s SoftBank Group, estimates its airwaves are worth about $16.4 billion. It will sell the airwaves to three newly created subsidiaries, which will borrow the $3.5 billion from investors by putting the airwaves up as collateral.
The subsidiaries will lease the airwaves back to Sprint, with the lease payments being used to cover the interest on the bonds. The offering is expected to be rated investment grade by Moody’s Investors Service and Fitch, the company said.
“It’s a creative way for Sprint to find additional funding to service its customers and its business,” Barclay’s analyst Amir Rozwadowski told Reuters.
As The Kansas City Star reports, Sprint turned to creative financing techniques “because its financial condition had all but cut off the company’s access to raise money by directly issuing unsecured bonds to investors.”
At the end of fiscal 2015, Sprint had nearly $37 billion of total debt outstanding and a negative cash flow of $3.17 billion. It must repay $4 billion of total debt by March 2017.
Analyst Jennifer Fritzsche at Wells Fargo Securities told investors in a note that the latest financing deal “further distances” Sprint from the high-cost bond market and would boost its ability to handle debts that are coming due through the end of 2018.
But Mike McCormack at Jefferies said the offering “continues what we consider a ‘hail mary’ strategy for Sprint as it further levers up a debt-laden balance sheet through creative financing techniques. The bet is clearly on getting the network quality on par, and improving subscriber trends in hopes of buying back these assets in the future, but with no end in sight to competitive pressures, we remain highly skeptical.”