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Is Sprint (S) Preparing to Mortgage Airwaves to Raise Cash?


According to a recent report by The Wall Street Journal, Sprint Corp. S, the fourth-largest national telecom operator in the U.S., is preparing to sale and leaseback a little over 10% of its total airwaves (wireless spectrum) holdings. Most of these spectrums will be from 2.5 GHz frequency bands and some will be from 1.9 GHz frequency bands.

Per Sprint’s own estimate, its portfolio of airwaves is valued at more than $14 billion. However, the company aims to raise around $3.5 billion by issuing investment grade bonds that will mortgage its spectrums of the abovementioned frequency bands. At present, Sprint is suffering from liquidity crisis. The company desperately needs to raise cash in order to fund its business.

At the end of fiscal 2015 (ended Mar 31, 2016), Sprint had nearly $37 billion of total debt outstanding and a negative cash flow of $3.17 billion. The company needs to repay $4 billion of total debt by Mar 2017. Management aims to slash costs by more than $2 billion in fiscal 2016. In Nov 2015, the telecom carrier raised $1.2 billion by selling and leasing back handsets. In Apr 2016, Sprint used network assets as collateral to raise $2.2 billion.

At present, Sprint is lagging way behind its larger peers like Verizon Communications Inc. VZ and AT&T Inc. T. In fact, T-Mobile US Inc. TMUS has also surpassed Sprint with respect to net wireless customer addition. Sprint was unable to take part in the AWS-3 spectrum auction conducted by the FCC in 2015 and is not participating in the ongoing Incentive Auction for low-band spectrums due to severe financial crunch.

Sprint expects fiscal 2016 adjusted EBITDA of $9.5 billion to $10 billion and operating income of $1billion to $1.5 billion. Capital expenditures will be approximately $3 billion. Adjusted free cash flow will be around breakeven. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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