Sprint picks up $1.1 billion in cash with long-awaited SoftBank leasing deal

Sprint Corp. said Friday it will collect a much needed $1.1 billion in cash under the first round of a new funding deal intended to ease strains on its pocketbook.

The Overland Park-based wireless carrier announced its deal with a newly created company set up in part by Sprint’s parent company Tokyo-based SoftBank Group Corp.

Mobile Leasing Solutions LLC, the provider of the cash, stands ready to do similar deals with Sprint in the future, Sprint’s chief financial officer Tarek Robbiati said.

“We believe we can easily replicate this,” Robbiati said during a conference call with Wall Street analysts.

Sprint CEO Marcelo Claure has told investors the leasing company deal would help finance Sprint’s turnaround. He was not involved in the call with analysts.

Robbiati said he expects smaller but similar deals between Sprint and Mobile Leasing Solutions perhaps on a quarterly basis. He also said that the funding cost to Sprint is attractive and likely to become cheaper in future deals.

Robbiati would not say what the exact financing costs are but that they represent essentially an interest rate “in the mid-single digits,” suggesting a rate perhaps around 5 percent to 6 percent.

The alternative is for Sprint to borrow money upfront. To do that, it pays “double-digit” interest rates in the high-yield bond market.

Investors, who’ve been waiting for the deal, reacted negatively at the morning announcement by bidding down Sprint shares sharply. The stock’s price recovered much of its lost ground quickly but remained 24 cents lower, or down 5.8 percent, at $3.82 in morning trading. It had traded as low as $3.30.

The deal got a tentative thumbs up from analyst Jennifer Fritzsche at Wells Fargo Securities.

“While we need to hear more details on the call (with analysts), we view the release of this information as a positive as this was a clear ‘wait and see’ moment for Sprint,” Fritzsche wrote in a note to clients before Robbiati’s conference call.

Kevin Smithen, with Macquarie Securities, gave his unqualified approval.

“We view today’s announcement as a major positive for Sprint shares and believe that this morning’s selloff will reverse once investors realize that Sprint’s cash burn rates will improve dramatically and the company can now focus on growth,” he wrote in a note to clients.

During the call, Robbiati explained how the deal works.

Sprint agreed to sell $1.3 billion worth of cellphones that it had bought and leased to subscribers on the Sprint network. Much of Sprint’s cash strain comes from the need to constantly buy new phones to help attract customers to its wireless service.

Although the customers who leased the phones pay monthly for their use, Sprint doesn’t recover all the cash it laid out to buy them for about two years.

Friday’s announcement was that Sprint found a buyer for 2.5 million iPhones currently leased to Sprint customers. It is Mobile Leasing Solutions LLC and was created specifically for this deal and those expected in the future.

Robbiati said the key for Sprint is that it can recover most of the cash it used to buy the phones in one to three months rather than two years.

Mobile Leasing paid Sprint $1.1 billion in cash for the $1.3 billion worth of phones. Sprint also will receive and additional $100 million in future consideration under the terms of the deal. The difference, along with other adjustments when customers ultimately return many of the phones to Sprint, amounts to the cost of the cash funding to Sprint.

Sprint customers won’t notice any changes, Robbiati said.

They can continue to lease phones from Sprint and still have the same choices once their leases end, he said. Customers can choose to buy the phone at its used value, continue leasing the phone or return it for a lease on a new phone.

Sprint, as part of the deal, essentially will forward customers’ lease payments to Mobile Leasing, the devices’ new owner.

Sprint said the deal will be completed in the first week of December and immediately provide additional cash.

In the call with analysts, Robbiati emphasized that Friday’s deal was just the first of many to come as this deal established the structure by which Sprint can continue to finance the phones it provides to customers.

Mobile Leasing Solutions was setup in part with backing by SoftBank, Japanese banks and leasing companies that Sprint did not identify.

The deal also involves SoftBank’s Brightstar Corp., which it bought from Claure when he became Sprint’s CEO in August 2014. Brightstar will handle Mobile Leasing Solution’s inventory, including resale of used phones to help recover as much of the cost as possible. Brightstar made purchase agreements with billionaire Terry Gou’s Foxconn Technology Group, a maker of iPhones for Apple Inc., as part of the deal.

Robbiati said Sprint is working on a similar leasing arrangement with its network equipment that would further help the company’s cash holdings.

Bloomberg News contributed to this story.

This story was originally published November 20, 2015 at 10:39 AM with the headline "Sprint picks up $1.1 billion in cash with long-awaited SoftBank leasing deal."