Sprint seeks to raise $3.5B or more in spectrum lease-back arrangement

Image: Flickr user 401(K) 2012

Sprint announced plans to raise $3.5 billion or more by initiating a private placement of spectrum-backed notes to increase its liquidity in advance of looming debt payments.

And the move may actually provide a lift to Dish Network as well, according to at least one research firm.

Sprint said it will place 14 percent of its spectrum into three vehicles that will then lease the airwaves back to Sprint under a long-term agreement. The carrier said the spectrum has been estimated by a third party to have a value of $16.4 billion, and Sprint will initially look to raise $3.5 billion but could raise as much as $7 billion under the structure.

The move isn’t a surprise: Sprint first indicated it would establish a “SpectrumCo” sale-leaseback arrangement late last year, and it has established similar structures to leverage its device-leasing program and its network assets. The carrier said it expects the notes to be rated investment-grade by both Moody’s and Fitch, and the deal is expected to close in the next month.

“While the interest rate paid on the notes was not disclosed, we would expect it to be in the low- to mid-single digit percent range given its IG rating,” Jennifer Fritzsche of Wells Fargo Securities wrote in a research note to investors. “This further distances itself from the HY (high yield) market, and bolsters its liquidity position to handle debt maturities through 2018.”

Indeed, the initial $3.5 billion Sprint looks to raise is “at the higher end of the expected” range of $2 billion to $4 billion, Fritzsche noted.

Sprint said it placed 1.9 GHz licenses covering 33 percent of its cell sites and 2.5 GHz licenses covering 77 percent of its cell sites into the vehicles. The valuation of $16.4 billion for the airwaves appears to provide some insight regarding the overall spectrum market, New Street Research analysts wrote.

“The market will likely treat the appraised value with skepticism, at least until more details are revealed,” New Street analysts wrote in a research note. “In addition, skeptics will point out that lenders are only effectively underwriting $3.5 billion to $7 billion in value rather than $16.4 billion. Finally, the transaction hasn’t closed yet. Nevertheless, if the appraised value for the 2.5 GHz is in fact $1.50 to $2 per MHz per POP, we would regard this as a positive data point for Sprint’s spectrum value and spectrum values in general.”

And that would be good news for Dish, New Street analysts said. Dish continues to compile spectrum but has yet to do anything significant with it, leaving analysts to wonder just how to value the airwaves – and therefore the company.

“Investors always ask what the floor value for Dish is – if (Sprint’s) transaction is completed we would argue that this marks a rational floor,” New Street wrote. “Any way you look at it, if completed, this transaction should be viewed as positive for Dish’s equity.”

For more:
- see Sprint’s announcement

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