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Sprint using airwaves as collateral to raise $3.5 billion

Sprint Corp. is borrowing against its federally issued airwaves licenses to put $3.5 billion into its pocket under a much-awaited sale and lease-back deal.

The Overland Park-based wireless carrier already had raised more than $2 billion through two rounds of a first-of-its-kind deal that involved selling smartphones that it had leased to customers. It raised more than $2 billion more in a similar deal involving some of its wireless network equipment.

Sprint turned to such deals because its financial condition had all but cut off the company’s access to raise money by directly issuing unsecured bonds to investors.

Analyst Jennifer Fritzsche at Wells Fargo Securities told investors in a note Wednesday that the latest financing deal “further distances” Sprint from the high-cost bond market and bolstered its ability to handle debts that are coming due through the end of 2018.

The additional debt drew a cautionary note from analyst Mike McCormack at Jefferies.

“In our view, this latest move continues what we consider a ‘hail mary’ strategy for Sprint as it further levers up a debt laden balance sheet through creative financing techniques. The bet is clearly on getting the network quality on par, and improving subscriber trends in hopes of buying back these assets in the future, but with no end in sight to competitive pressures, we remain highly skeptical,” McCormack wrote.

Sprint did not disclose the interest rate it would pay under the new financing deal, but Fritzsche estimated rates would be “in the low-to-mid single digit percent range.”

Sprint’s newest fundraiser involves its wireless spectrum, the licensed frequencies of airwaves that its network signals travel on.

Sprint’s announcement said it is selling 14 percent of its spectrum holdings, measured by how many potential customers these licenses cover through the company’s network. The buyers are three of Sprint’s own newly created subsidiaries. The subsidiaries will borrow the $3.5 billion by putting the spectrum up as collateral.

Investors are buying $3.5 billion worth of bonds issued privately by the subsidiaries. The subsidiaries will lease the spectrum back to Sprint so it will be able to continue using it. Sprint’s payments under the lease will be used to cover the interest on the bonds.

The announcement did not say when repayment of the bonds would be due only that their maturity dates varied. Rating agencies Moody’s Investors Service and Fitch Ratings will issue debt ratings on the spectrum-backed bonds.

Fitch said in presale report on the bonds it expected to rate them BBB, in part because the debt would be “backed by ‘hell-or-high-water’ lease payment obligations” that were guaranteed by Sprint.

An announcement from Sprint said the company could raise $7 billion using this spectrum sale-and-lease-back structure. Sprint has made $16.4 billion worth of its spectrum available in the deal. It involves Sprint’s 1.9 GHz and 2.5 GHz spectrum.

Mark Davis: 816-234-4372, @mdkcstar

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