US cellco Sprint has announced the launch of a new device leasing company, Mobile Leasing Solutions, which is expected to provide it with US$1.1bn in cash at closing. The move is aimed at improving liquidity and providing relatively low-cost financing.
US cellco Sprint (NYSE:S) has announced the launch of a new device leasing company, Mobile Leasing Solutions, which is expected to provide it with US$1.1bn in cash at closing.
The cash proceeds are part of a total consideration of about US$1.2bn, to be exchanged for about US$1.3bn worth of leased devices, Sprint said.
The transaction, developed by Sprint and its Japanese shareholder Softbank (TYO:9984), is designed to improve the carrier’s liquidity position and provide financing at a considerably lower cost than the high-yield debt market. It is expected to close in the first week of December.
Sprint CFO Tarek Robbiati (pictured) commented: “Providing mobile devices to customers is the biggest use of cash in the carrier model and with this new structure we have more closely aligned Sprint’s cash flows with those associated with leasing devices to our customers”.
Softbank formed Mobile Leasing Solutions with a group of equity investors, which secured financing from several lenders, including international banks and leasing companies, Sprint said.
Privately held device distributor Brightstar helped to structure the transaction, and is providing the lease management and tracking system to be used by the new leaseco. The firm has also been contracted to provide reverse logistics and device remarketing, including a yet-to-be-finalised forward purchase agreement with Foxconn aimed at minimising the depreciation of device values.
Sprint has amended its existing receivables facility to include the sale of future lease receivables, upping the funding cap to US$4.3bn from US$1bn. These receivables relate to devices not included in the leaseco.
The carrier has revised its outlook for adjusted EBITDA for the 2015 fiscal year, reducing it to US$6.8bn-US$7.1bn from US$7.2bn-US$7.6bn. The drop is solely due to the leaseco.
Wells Fargo analyst Jennifer Fritzsche said she views the announcement as positive since it should help to resolve Sprint’s liquidity woes.
While the lower EBITDA forecast is clearly not good news, Fritzsche said it should be borne in mind that the transaction improves Sprint’s free cash flow.
“The formation of the leasco increases cash flow by reducing the volatility in working capital and provides financing at more attractive rates than alternatives in the high-yield debt market,” she said.
