Turmoil in the junk bond market may have dried up that funding source for Sprint Corp., at least for the time being.
That’s the upshot of a Wall Street Journal report on Monday, supported in part by a colorful quote from the manager of a bond fund.
“The world’s just had enough of Sprint paper,” the Journal quoted Darren Hughes, with the Invesco High Yield Fund, to say. “You can’t really put any more stuffing in the turkey.”
Junk bonds is another name for the high interest rate bonds that companies with poorer credit ratings, including Sprint, issue to raise capital. Investors demand higher interest rates on those bonds, which produces the high yield they want to compensate for greater risks that they won’t be repaid on time.
But the junk bond market isn’t necessarily out of Sprint’s reach, says its chief financial officer, Tarek Robbiati. He spoke last week at an industry conference and was asked specifically about Sprint’s cash situation.
Robbiati first referred to the $1.1 billion in cash Sprint raised recently using a first-of-its-kind sale-and-lease back deal. The deal involves selling the smartphones it buys and leases to subscribers. And it’s a deal Sprint expects to repeat with some regularity as a ready source of cash.
One key to the deal was its mid-single-digits financing costs for Sprint. Sprint currently would expect to pay double-digit interest rates to borrow more money through junk bonds.
“We’ve demonstrated to the market that we’re that not dependent on high yield,” Robbiati told investors at the conference.
Still, he said the market is not closed to Sprint despite the turmoil that has driven down the prices on Sprint’s existing bonds and driven up the interest rate it would have to offer to sell more bonds.
“Can we raise money in the high yield market? Yes, we can,” Robbiati said in posing and answering his own question. “Will we raise money in the high yield market? No, because it’s very expensive at this stage.”