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Sprint May Continue High-Risk Financial Strategy With Spectrum, Real Estate Lease-Backs, Per Analysts

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When Sprint announced this week its plans of utilizing its own network gear as collateral in order to acquire $2.2 billion from outside investors (including its parent company SoftBank), some viewed the move as akin to the wireless carrier’s approach of forming a device leasing company to alleviate costs from its books and offer more liquidity. As for several industry watchers, they are now saying that other similar deals will likely happen in the foreseeable future.

Back in November of last year, Sprint had sold leased device assets worth $1.3 billion to Mobile Leasing Solutions (MLS), a company formed by SoftBank with other investor parties. Through that deal, Sprint got a sum of $1.2 billion in total financing. In the same vein, Sprint stated recently this week that it is planning to raise about $2.2 billion by selling a number of its cell tower equipment to yet another new party in the hopes of receiving $2.2 billion. The wireless carrier will be paying back the loan by way of staggered, unequal payments to be completed over a period of a couple of years.

It appears that Sprint will employ the same strategy by making use of spectrum and maybe other assets as well, and then turning them into collateral. This will allow the wireless carrier to pay off billions of money in loans that will become due before this year is over and throughout next year. This approach, however, only serves to put the company on a more risky financial standing.

As noted by Jennifer Fritzsche, an analyst from Wells Fargo Securities, more tranches are expected to be announced in the future, which would increase the cash infusion to a total of somewhere between $3 billion and $5 billion. According to Fritzsche, now that Sprint has set a precedent, it is likely that more efforts to initiate capital infusion will happen in the future. This is echoed by analysts at Barclays, noting that Sprint appears to be intent on offering a mixture of network assets (including spectrum and radio access equipment) in exchange for financing.

To date, all of Sprint’s spectrum assets are valued at over $115 billion, which by any measure, should allow the wireless carrier plenty of business leverage. Moreover, the company also has the option of serving up extra network gear and real estate for interested external investors in order to raise funds to take care of its payables.

With all these debts, when exactly can Sprint bounce back from its losses? Remember that while the wireless carrier was able to gain 501,000 postpaid net additions during the final quarter of last year, it also registered a net loss amounting to $836 million. Not to mention, Sprint operates Boost Mobile, Virgin Mobile and Sprint Prepaid brands. Any answer to the question remains anybody’s guess.


Source: Fierce Wireless

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21 comments:

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  1. Sprint....last place fora reason.




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  2. All of these fancy financial vehicles remind me scandals like Enron, Arthur Anderson, WorldCom, FreddieMac, AIG, Lehman Brothers and Bernie Madoff. How long before Sprint is listed among these dejected firms?

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  3. Us cellular step(5th place) ur game up or buy Sprint and end the madness... Lol

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  4. Sprint obviously doesn't have a viable future. They should look for buyers for their assets before bankruptcy liquidation becomes their only option.

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  5. Just close business. There are several companies better than Sprint.

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    1. Two, really, are "better" when it comes to carriers.

      And there are so few large carriers overall, that I'd rather not lose even one.

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  6. "Sprint May Continue High-Risk Financial Strategy With Spectrum, Real Estate Lease-Backs, Per Analysts"
    Look, I know many of the 'new' articles here are just re-writes from Fierce Wireless and other sources, but why the sensational headline if you don't explain it in the article?
    Sprint is borrowing money at a lower cost of capital by using its assets as collateral.
    How is this high-risk, when it significantly lowers borrowing costs and improves the balance sheet?
    Sprint needs to continue to make its loan payments. Sprint must improve its network (using small cells and improved backhaul) if the turn-around plan is going to work. That takes a lot more money.
    What is wrong with the plan you deem high risk? What would you do instead? Borrow at junk rates and die slowly?
    Many of us have home mortgages and car loans. Do you think those are high-risk strategies?

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    1. This sounds more like taking a second mortgage on a home so you can pay the first mortgage. And a payday note against your car so you can buy gas. If they can't operate and improve their business though conventional borrowing, then they are high risk by definition. All this creativity simply proves it to the world.

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    2. No, the assets they sold were not "mortgaged" or used as collateral on their previous debt. So there is no "second mortgage." Using assets as collateral to lower the cost of borrowing is a common and accepted business practice.
      Borrowing at junk bond rates with no collateral would be a bad move; they would pay far too much interest. Sprint is trying to cut $2.5B in costs, not increase costs.

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    3. If they continue selling off their spectrum and assets, and leasing them back, they will effectively (if not by regulation) be an MVNO.

      Once all the spectrum and assets are no longer owned by Sprint, all they have is their name value. Which isn't much. Then Son would have little to write off, and be in a position to restructure the carcass into a viable infrastructure leasing company for the big 3.

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    4. "The deal effectively allows SoftBank to provide support for Sprint, while not financing it directly," Evercore ISI analysts Jonathan Schildkraut and Justin Ages said in a research note. Softbank and several Japanese banks are involved. This is not without precedent. All four major carriors have sold towers to Castle and other tower companies and leased them back. Sprint needs cash to invest in its network and pay back current loans. This deal solves that problem at a lower cost to Sprint, and Softbank does not have to assume all the risk of financing on its balance sheet.
      "If we show performance on our plan, we should be able to refinance without an issue. At the same time if we use our balance sheet better we could start to de-lever the company," Claure told Bloomberg

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  7. Softbank is misusing their position to illegally strip Sprint of assets in advance of a Sprint's bankruptcy filing in 2017 or 2018. Other equity inventors and lenders are having their investment in Sprint devalued as Softbank mpves core Sprint assets to new entities controlled by Softbank for a relatively low price.

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    1. Sprint is still spending $Billions to improve its network. If Softbank was stripping Sprint, they would just keep the money from the asset sales and stop new investment. If Softbank stripped Sprint just to declare bankruptcy as your imagination told you, they would lose all of the $20.1 Billion they invested to buy Sprint plus the extra money they have invested since. That makes no sense; Son is not dumb. Softbank will support the current business plan for Sprint as long as it has a chance to succeed.

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    2. There's a plan? More like a "Hail Mary". And my guess is when the ball is dropped (as history would predict) Son bids farewell and accepts his losses.

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  8. Why do you need 3 prepaid arms competing against themselves?

    With Boost mobile, why is Virgin still around?

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    1. It's called market segregation. Go after different customers with different channel strategies. Sprint says they will announce a new strategy for Virgin. But right now their priority is to increase postpaid subscribers, and prepaid is taking the back seat as they cut advertising costs in this hyper-competitive, prepaid market that is no longer growing much.

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    2. That's actually a guess. Remember also that Virgin was a separate company when Sprint bought it. It was most definitely not created as a shewed Sprint master plan involving any "strategy" however.

      Now, Virgin is still here. But how much is that part of a real strategy, or is it just because Sprint doesn't want to rock the boat and wipe it out?

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    3. You flunk your own history "lesson." Virgin was originally a joint venture between Sprint, Virgin Group and SingTel. Sprint bought out Virgin's and SingTel's shares. And Boost was first targeted at urban youth, not the youth mass market.
      So all you have left is questions.

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  9. I only help for this company is to merg with another wireless company when will eventuly fold It's just a matter time that going to happen.

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  10. The FTC and FCC will let them merge with T-Mobile only after they file for chapter 11.

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    1. By then, Softbank will have their spectrum and infrastructure. Tmo will probably not be interested in the remains; perhaps Dish will.

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