Sprint Corp. (NYSE: S) has inked another deal with Mobile Leasing Solutions for the sale and lease-back of some of the telecommunications holding company’s fixed assets. The agreement is anticipated to provide Sprint with cash amounting to $1.1 billion. This announcement comes just a couple of days before the mobile carrier is scheduled to report earnings results for the fourth quarter of fiscal year 2015 on the 3rd of May.
The telecommunications firm has decided to go for a rather unusual way to pay off part of its massive debt worth $34 billion. The deal will be arranged by Mizuho Securities Co., and it will be the second deal of the mobile carrier’s second deal with Mizuho. The first deal with is an 18-month bridge financing to give extra liquidity of $2 billion.
During the previous month, the mobile carrier revealed that it will sell network equipment amounting to $3 billion, to a newly formed company. The said company will pay the telecommunications holding company with $2.2 billion for the network equipment and then immediately lease these assets back to Sprint.
According to the firm, the network equipment assets will stay on the balance sheet of the mobile carrier and will continue to be accounted for depreciation. With these lease-back deals, the struggling telecommunications holding company was able to obtain up to $5 billion in loans by using its network assets as collateral. The payments made to Mobile Leasing Solutions will be displayed as principal repayments and interest expense.
Although this form of financing is somehow unusual, lease-back transactions have served Sprint well. This method would grant Sprint with access to better financing terms with mid single digit rates, in comparison to high yield dollar-denominated bonds. Because of the massive debt of Sprint, the firm currently has a disappointing credit rating.
According to JPMorgan analyst Mr. Philip Cusick with regards to these agreements: “the transaction is one of many tools that Sprint can use to remain solvent for at least the next two-plus years while it works to stabilize the company and try to return to growth.”
The struggling company has been making efforts in attempting to control increasing debts and costs. Sprint is working on offerings to boost its market share and stay solvent. Furthermore, the mobile carrier has not reported profits for more than 7 years now.
The telecommunications holding company has so released a series of promotional campaigns in order to entice customers. Some of these promotional campaigns include offering iPhones for $1 on contracts and monthly rates that are equivalent to half of that of its major rivals. During the third quarter of fiscal year 2015, the firm has registered postpaid net additions of 501,000, marking more than 471,000 more additions in comparison to the year-ago quarter.
Amid these various changes, the mobile carrier may still find it challenging to provide services to its clients. During the past month, the company has experienced 2 network outages, which impacted clients around the country. With this, we would recommend that market players closely watch out for this stock, as Sprint tries to become more stable financially.