Sprint Corporation (NYSE: S) entered into a transaction with several bankruptcy remote entities (collectively “Network LeaseCo”) for the sale and leaseback of certain existing network assets, which is expected to close next week and provide the company with $2.2 billion of funding. When closed, the transaction will immediately improve the company’s liquidity position at an attractive cost of capital in the mid-single digits.
“Sprint and SoftBank have worked together again to create a unique structure that provides Sprint with an attractive source of capital,” said Sprint CFO Tarek Robbiati. “This transaction is an important first step in addressing upcoming debt maturities and allows us to stay focused on our corporate transformation, which involves growing topline revenues and aggressively taking costs out of the business to improve operating cash flows.”
Network LeaseCo will acquire certain existing network assets and then lease them back to Sprint. The assets acquired by Network LeaseCo will be used as collateral to raise approximately $2.2 billion in borrowings from external investors, including SoftBank. The $2.2 billion of cash proceeds Sprint expects to receive from the transaction is scheduled to be repaid in staggered, unequal payments through January 2018.
For accounting purposes, Sprint will consolidate Network LeaseCo and Sprint’s consolidated financials will reflect the cash proceeds it receives and the underlying debt of Network LeaseCo. The network assets involved in the transaction, which have a net book value of approximately $3 billion and consist primarily of equipment located at cell towers, will remain on Sprint’s consolidated financial statements and will continue to be depreciated. In addition, Sprint will record interest expense incurred in connection with the debt of Network LeaseCo.
As of December 31, 2015, Sprint had total liquidity of $6 billion with an additional $600 million of availability under vendor financing agreements that can be used toward the purchase of 2.5 GHz network equipment.
