Sprint announced Friday it has signed a $1.2 billion deal with newly formed device leasing company Mobile Leasing Solutions, LLC for the sale and lease-back of certain leased devices.
According to Sprint, the deal is expected to provide the carrier with $1.1 billion in cash proceeds as part of $1.2 billion in total considerations in exchange for nearly $1.3 billion in leased device assets. According to Sprint CFO Tarek Robbiati, nearly 2.5 million devices will be sold to Mobile Leasing Solutions as part of the deal, many of which will be high-end devices with significant time remaining on their leases. The sale will not result in any changes to the customer’s options at the end of the lease term, which will include the return or purchase of the device or continuation of a lease on a month-to-month basis, Robbiati said.
Sprint said the transaction, which is expected to close in early December, will “immediately improve the company’s liquidity position” and create a “repeatable structure to sell future leased devices.”
“Sprint and SoftBank have worked together to create a unique structure that advances a very high percentage of the total value of certain devices leased to our customers, including the device residual values,” Robbiati said in a statement. “Providing mobile devices to customers is the biggest use of cash in the carrier model and with this new structure we have more closely aligned Sprint’s cash flows with those associated with leasing devices to our customers.”
According to details provided by Robbiati on a Friday investor call, the deal will help Sprint address the working capital impacts of leasing by aligning the timing of cash inflows and outflows. Robbiati said the December tranche will be the first of “many,” and said he expects further transactions will occur on a quarterly basis. A second tranche can be expected in March of 2016, he said. Future tranches will probably be done on a smaller scale, Robbiati said.
Robbiati said one of the most important aspects of the deal is its creation of a sustainable ecosystem of partners for future transactions.
“We are very comfortable that this is not a structure that is one off, it’s something we can replicate and is here to stay,” Robbiati said.
Sprint, which had previously teased its plans to start a device leasing company, said Mobile Leasing Solutions was formed with the help of equity investors, including Sprint’s parent company Softbank and three other Japanese banks, and structural support from Brightstar Corp’s Financial Services Business. Brightstar will also provide reverse logistics and device remarketing services for the new company, including the execution of a forward purchase agreement with Foxconn that has yet to be finalized, Sprint said.
“I cannot underscore enough how influential SoftBank has been in bringing a strong team together,” Robbiati said on a Friday’s call.
Alongside the announcement, Sprint said it has revised its Receivables Facility to include the sale of future lease receivables, which increased the maximum funding limit to $4.3 billion. However, the company also released a downward revision to its financial outlook for Adjusted EBITDA for fiscal year 2015, lowering expectations from $7.2 to $7.6 billion down to $6.8 to 7.1 billion.
Sprint investors reacted poorly to the news Friday morning, resulting in a dip of five percent in early premarket trading. As of 11:55 a.m., Sprint stock remained down more than five and a half percent.
Filed Under: Carriers
