Sprint has made an unusual and tricky financial deal to raise $2.2bn as it moves ahead with a turnaround plan.
As part of the deal, the company will be selling network assets to bankruptcy-remote companies or special purpose entities within Sprint and leasing back its network assets worth $3bn.
This deal will improve its liquidity position and address some maturing debts.
Sprint will be transacting with Network LeaseCo, a name given to an entity which it describes as several bankruptcy remote entities.
This new entity Network LeaseCo will acquire Sprint’s network assets and will lease them back to Sprint.
After selling its network assets and leasing them back from Network LeaseCo, it will use it as collateral to raise $2.2bn in borrowings from several outside investors including Japan’s SoftBank.
This deal is very similar to the deal that took place last year when Sprint required cash of $1.1bn and it had to sell its phones which were leased to customers.
According to reports, raising debt funds is not an option for Sprint because debt investors are demanding higher interest rates and Sprint cannot afford this.
Sprint CFO Tarek Robbiati said: "Sprint and SoftBank have worked together again to create a unique structure that provides Sprint with an attractive source of capital."
"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."
Sprint says that it will consolidate Network LeaseCo and its consolidated accounts will reflect the cash proceedings it receives and the underlying debt of Network LeaseCo.
The network assets involved in this transaction are cell towers and equipment scattered across the country, with a book value of about $3bn. They will remain on
Sprint’s consolidated financial statements and will continue to be depreciated.
Apart from depreciating these network assets, it will also add interest for the debt to Network LeaseCo’s account.