Sprint taps into its net­work—to cover its debts

A net­work-leas­ing unit is the lat­est bailout plan “It shows what kind of bind Sprint is in”

Bloomberg Businessweek (Asia) - - CONTENTS - −Scott Moritz

As Sprint nears an eighth straight year in the red, the mo­bile op­er­a­tor is car­ry­ing $34 bil­lion in debt, more than twice its mar­ket value. Chair­man Masayoshi Son, whose con­glom­er­ate Soft­Bank took con­trol of Sprint in 2013, has a plan to start pay­ing off those debts—mort­gag­ing its wire­less spec­trum. It’s a lit­tle like bor­row­ing against the tires to make car pay­ments.

Ac­cord­ing to Sprint Chief Fi­nan­cial Of­fi­cer Tarek Rob­biati, the pro­posal is to cre­ate an­other sub­sidiary of Son’s Ja­panese cor­po­ra­tion that will lend Sprint money. The new unit plans to ac­cept the car­rier’s wire­less equip­ment and some of its spec­trum rights as col­lat­eral. Sprint says that while it won’t give up con­trol of those pre­cious air­waves—worth more than $115 bil­lion, ac­cord­ing to Bloomberg In­tel­li­gence—it’s aim­ing for $3 bil­lion to $5 bil­lion this year from th­ese loans.

“Spec­trum is one of the most valu­able as­sets they have,” says Dave Novosel, an an­a­lyst with Gimme Credit. “It gives them some­thing to be mea­sured on, since Sprint can’t be mea­sured on cash flow.”

Us­ing spec­trum as col­lat­eral is a rare move, which sug­gests Sprint is run­ning out of short-term op­tions in an un­fa­vor­able high-yield bond mar­ket. It has to make $2.3 bil­lion in debt pay­ments this year, a warmup for $10 bil­lion com­ing due by the end of 2020. “This is set­ting up to be a game of chicken be­tween Masa and the high-yield mar­ket,” says Chris Ucko, an an­a­lyst with bond re­searcher Cred­itSights.

To buy time, Son has been hunt­ing for as­sets he can bor­row against. In Novem­ber an­other Soft­Bank sub­sidiary paid Sprint $1.2 bil­lion for much of Sprint’s phone in­ven­tory. (It’s leas­ing the phones back.) Spec­trum may be the one as­set more im­por­tant than the phones them­selves.

Sprint owns the largest piece of high­fre­quency, 2.5-gi­ga­hertz spec­trum in the U.S. It’s been promis­ing for years that with enough in­fra­struc­ture be­hind them, the air­waves could cre­ate Amer­ica’s fastest wire­less net­work. Chief Tech­nol­ogy Of­fi­cer John Saw calls that bit of spec­trum the “crown jewel.”

Pend­ing a big in­vest­ment in its net­work, Sprint has fo­cused on un­der­cut­ting ri­vals Ver­i­zon and AT&T. By low­er­ing data fees and lib­er­ally us­ing half-off pro­mo­tions, it added net sub­scribers last year for the first time since 2008. To keep them, though, Sprint will have to fix its net­work, says BTIG an­a­lyst Walt Piecyk.

In Oc­to­ber the com­pany an­nounced a $2.5 bil­lion round of cost-cut­ting, which has helped it boost cash and cash equiv­a­lents about 12 per­cent, to $2.2 bil­lion. That’s still about half what it was a year ear­lier.

An­a­lysts ex­pect Sprint to re­port a net loss of $1.5 bil­lion for its fis­cal year end­ing in March. Stan­dard & Poor’s cut the com­pany’s credit rat­ing one level, to B, on Feb. 2, cit­ing “in­tense com­pe­ti­tion.” Moody’s In­vestors Ser­vice down­graded Sprint to a high-risk B3 in Septem­ber.

“I don’t think Sprint will go bel­lyup. Masa would prob­a­bly be there to bail them out,” says Roger Ent­ner, an an­a­lyst with re­searcher Re­con An­a­lyt­ics. “But it shows what kind of bind Sprint is in, when you have to col­lat­er­al­ize the plates and sil­ver­ware.”

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