Sprint has signed a deal to sell and leaseback certain high-end mobile devices that are leased to customers in a bid to improve its liquidity position.
The U.S. mobile operator on Friday announced the $1.2 billion deal, that will yield $1.1 billion in cash proceeds, with Mobile Leasing Solutions, a newly-formed group of equity investors that includes Sprint’s owner Softbank.
Essentially, Sprint will sell millions of devices that are currently leased to customers to Mobile Leasing Solutions. It will then lease back the devices and in turn lease them to customers as normal. The deal effectively works as a loan to Sprint; the telco said it will gain the funding at an attractive cost of capital compared with its alternatives in the high-yield debt market.
"Sprint and Softbank have worked together to create a unique structure that advances a very high percentage of the total value of certain device s leased to our customers, including the device residual values," said Sprint CFO Tarek Robbiati, 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," he added.
Sprint expects the deal to close in the first week of December and said it will immediately improve its liquidity position.
It added that the transactions sets up a "repeatable structure" for the future mitigation of the working capital impact of leasing devices to customers.
Sprint also amended its financial outlook for fiscal 2015 to take into account the impact of the transaction.
It expects to post adjusted EBITDA of $6.8 billion-$7.1 billion in the year to the end of March, down from a previous forecast of $7.2 billion-$7.6 billion.
Mobile Leasing Solutions has secured debt financing from several lenders including international banks and leasing companies, Sprint said.
The deal also involves Brightstar, the device distributor acquired by Softbank two years ago. Brightstar assisted in the formation of the company and is giving access to its lease management and tracking system, as well as providing reverse logistics and device re-marketing services. This includes a forward purchasing agreement currently being finalised with Foxconn that is designed to minimise the risk of reductions in device residual values.
