Sprint is reportedly moving forward with plans for a separate infrastructure and spectrum entity, replaces ‘experience’ officer
Sprint continues to invoke creative ways to fund operations, with the carrier reportedly moving forward on combining its network assets and some of its vast spectrum holdings into a new entity designed to loan back money to Sprint.
According to Bloomberg Businessweek, Sprint and parent company SoftBank are moving forward with creating a new operating entity to control Sprint’s network assets and some of its spectrum holdings that will in turn be able to loan Sprint up to $5 billion per year. The move would be similar to the device-focused Mobile Leasing Solutions subsidiary created late last year tasked with handling the financial aspects of Sprint’s device leasing program in which the carrier provides devices to consumers for a monthly fee over a fixed term before exchanging that device for a new model.
The latest report cites Sprint’s $34 billion in outstanding debt, which is more than twice its current market capitalization, and need to meet $2.3 billion in debt payments this year.
“This is setting up to be a game of chicken between [Sprint Chairman Masayoshi Son] and the high-yield market,” Chris Ucko, an analyst with bond researcher CreditSights, told Bloomberg Businessweek.
Sprint last month said it was working with SoftBank in setting up a “network-related financing entity” that will use network equipment and spectrum as collateral to provide up to $5 billion in 2016 funding. The first round of funding from the entity is expected to close by mid-year.
Sprint managed to squeeze $1.1 billion out of its first payments from MLS, which the carrier said came in below costs associated with “alternatives in the high-yield debt market.” Sprint said it is also boosting its existing receivables facility by $1 billion to a total of $4.3 billion related to the sale of future lease receivables to Mobile Leasing Solutions.
Craig Moffett of MoffettNathanson recently questioned Sprint specifically about accounting practices tied to its device leasing program, noting the carrier sourced 71% of its earnings before interest, taxes and depreciation from “accounting distortions” during the fourth quarter of 2015. Moffett said the accounting distortions started when carriers moved to device financing instead of subsidized pricing, and Sprint’s financials became even further divorced from reality when the carrier started leasing devices.
“Things really went off the rails when Sprint started doing leasing and I wouldn’t be surprised to see others start doing leasing because of the distortion, or benefit, that Sprint has gotten,” said Moffett. “On an as-reported basis, Sprint looks like it’s growing [earnings before interest, taxes, depreciation and amortization] at just under 30% and it looks like it’s trading at 5.7-times EBITDA, not an unreasonable number. But if you adjust for all the accounting nonsense, Sprint is actually growing EBITDA at negative 30% and it’s actually trading at 12-times EBITDA.”
Sprint’s stock (S) was trading up more than 2% early Wednesday at $3.54 per share.
Sprint appoints new ‘experience’ chief
Sprint’s revolving executive door continued to spin this week as the carrier announced the replacement of current chief experience officer Bob Johnson with former Vodafone and T-Mobile US executive Robert Hackl. The change is set to occur on April 1.
Hackl will be tasked with the management and measurement of the Sprint Promoter Score, and will also take on the role of president of national sales with responsibility for direct and indirect sales, as well as telesales. Hackl will be reporting directly to CEO Marcelo Claure.
Hackl previously served as commercial operations director at Vodafone in Germany, and prior to that as SVP of channel management at T-Mobile US.
Johnson, a 17-year veteran of the company, is set to leave Sprint at the end of April. The carrier has seen a number of executives replaced over the past two years as the carrier grapples with a changing internal culture.
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