Sprint is looking to mortgage just over 10 percent of its wireless airwaves to raise about $3.5 billion, according to a report by the Wall Street Journal.
This would not be the first time that the company will use assets as collateral to borrow money, which can be considered a creative but rather unusual way of raising cash in the telecommunications industry. Analysts so far have approved of the method that Sprint is using to raise capital due to the lower associated costs as opposed to entering the high-yield debt markets.
In November 2015, Sprint followed the same sale-leaseback model to raise $1.2 billion, but it used mobile phones as collateral at the time. A few months after in April this year, it raised $2.2 billion with collateral being network assets. Both transactions saw Japan's SoftBank Group, which owns Sprint, provide financing.
Sprint pegs the total value of the airwaves, also known as spectrum, at over $14 billion, but the company is not looking to borrow that entire amount right away. The initial target is the reported $3.5 billion, with the bonds expected to receive an investment grade rating.
The spectrum that will be included in the agreement will mostly be in the 2.5 GHz frequency bands, along with some 1.9 GHz frequency bands, said one of the sources of the Wall Street Journal.
The decision to put up the wireless airwaves as collateral for the latest round of capital raising could be spurred by the fact that Sprint owns the most of it among all carriers in the United States. Executives for Sprint have been saying for months that a capital raising deal with spectrum as the collateral was being worked on, with SoftBank now expected to announce the transaction as early as within the week.
The money that will be raised is needed to fund the company's business, said several sources familiar with the matter. Sprint has been in the red for several years now, with debt now reaching almost $37 billion. The company will have to pay back $4 billion by March 2017, which would be tough for the company to do given that its liquidity level was only at $11 billion at the end of the third quarter this year.
In an interview with Business Insider, T-Mobile CEO John Legere said that while Sprint was able to come up with a good series of commercials that featured Verizon's "Can you hear me now?" guy Paul Marcarelli making the move to the carrier, the advertisements are not true because there is still a huge difference among the networks.
