Sprint's (NYSE:S) $6.5 billion bond offering this week reportedly broke the record for the single largest noninvestment-grade offering ever sold directly to investors in a single day. Reports also indicated that Sprint will use part of the offering to pay off the more than $4 billion in debt owed by Clearwire, which Sprint acquired in July.
The notes came in two tranches: an eight-year, $2.25 billion batch of Sprint bonds priced at 7.25 percent and a 10-year, $4.25 billion tranche priced at 7.875 percent. Sprint officially said the bonds will be used for "general corporate purposes, which may include, among other things, redemptions or service requirements of outstanding debt and network expansion and modernization."
Citing an unnamed source, the Wall Street Journal reported that Sprint will likely use the bonds to retire all or part of Clearwire's debt. Also citing an unnamed source, the New York Times reported that Sprint is planning to retire about $3 billion worth of Clearwire's debt and plans to negotiate so that it can repay an additional $1 billion.
In a regulatory filing, Sprint said the offering may result in the company breaking terms of its loans unless it is "able to timely receive waivers from our lenders, reduce our outstanding indebtedness or otherwise eliminate our need to comply with Sprint Communications' credit facility covenants."
Sprint said it is talking with its lenders on getting the necessary waivers. "We fully expect to get the required waivers and anticipate having sufficient cash on hand to repay and terminate the facilities if we do not," Sprint spokesman Scott Sloat told Bloomberg.
Sprint had initially planned to sell bonds in early August, but market conditions weren't ripe, so at the advice of its advisers at J.P. Morgan, the carrier waited. "We thought about it in August, but it wasn't the right time," Sprint CFO Joe Euteneuer told the Times. "Knowing we have the Clearwire debt, though, we wanted to get it done sooner."
"We estimate Sprint will need about $6.2 billion in additional capital over the course of the next two years ($2.2 billion to fund H-Block purchase and the remainder to fund operating losses); however, we believe a substantial portion of this capital raise will be used to refinance Clearwire debt," New Street Research Analyst Jonathan Chaplin wrote in a research note.
In terms of total capital expenditures, Sprint expects to spend around $8 billion in 2013, $8 billion in 2014, and then $6 billion per year from 2015 to 2017. Sprint disclosed in July that it plans to deploy Clearwire's 2.5 GHz spectrum using TD-LTE on all 38,000 of its planned Network Vision cell sites in a nationwide rollout. And, due to the weaker propagation characteristics of 2.5 GHz, Sprint will also deploy small cells and other sites beyond the 38,000 Network Vision sites. Previously, Sprint had said it would use Clearwire's spectrum as a "hotspot" LTE network to offload traffic in urban markets.
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