Sprint Corp is taking US$1.2 billion in financing from a phone leasing company created by majority owner Softbank Group Corp to help lower equipment costs and relieve pressure on the unprofitable carrier’s dwindling cash supply.
As a result of the deal, Sprint lowered this year’s fiscal adjusted earnings before interest, taxes, depreciation and amortization to between US$6.8 billion and US$7.1 billion, down from a previous range of US$7.2 billion to US$7.6 billion, according to a statement on Friday.
US$1.3BN LEASE PLAN
Sprint sold Mobility Leasing Solutions LLC US$1.3 billion worth of phones in a lease-back arrangement that is to provide the carrier a total of US$1.2 billion in cash. Sprint’s majority owner, Tokyo-based Softbank, formed the separate leasing unit by using its access to low-interest loans from Japanese banks for financing, chief financial officer Tarek Robbiati said.
Phone distributor Brightstar Corp, also owned by Softbank, is to handle the leasing unit’s inventory, including resale of used phones to help recover as much of the cost as possible.
FOXCONN PART OF DEAL
Brightstar also made purchase agreements with Taiwanese billionaire Terry Gou’s (郭台銘) Foxconn Technology Group (富士康), a maker of iPhones for Apple Inc, as part of the deal.
The financing vehicle is to help Sprint get access to cash at a lower cost than if the company tried to sell debt in the high-yield market, Robbiati said in an interview last week.
UBS Securities LLC analyst John Hodulik called the move a step forward in Sprint’s turnaround plan. Access to the financing along with reduced costs “would lower its cash burn from US$5 billion this year to less than US$1 billion next year,” Hodulik wrote in a note on Friday.
All the major carriers sell phones on installment plans. For example, a customer agrees to pay the full price of the phone in US$25 payments spread over 24 months.
Selling these customer payments has become a way for carriers to access cash quickly. T-Mobile US Inc said earlier this year that it plans to sell debt backed by customer phone payments.
RATE CUT
The New York-based Moody’s Investors Service cut Sprint’s rating on Sept. 15 by two levels to the sixth-lowest non-investment grade, citing concern about the US company’s ability to refinance upcoming debt “absent a much stronger commitment from Softbank.”
Sprint’s shares dropped 5.4 percent to close at US$3.83 in New York on Friday.
The stock has fallen 7.7 percent this year compared with a 1.5 percent rise of the Standard & Poor’s 500 Index.
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