Sprint Gets $1.1B Payday with LeaseCo Deal

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Earlier this year Sprint said it planned to craft a deal with a firm to handle sale and leasing of certain devices. On Friday, November 20, the plan hatched with the carrier’s announcement it signed a deal with Mobile Leasing Solutions, LLC (the newly formed LeaseCo). The deal is expected to close in the first week of December. Evercore ISI analyst Jonathan Schildkraut observed, “Importantly, the agreement will provide Sprint with $1.1 billion in cash proceeds at closing.” Schildkraut noted Sprint also amended its existing receivables facility, increasing the funding limit by $1 billion to a total of $4.3 billion. “We believe Sprint should be focused on generating free cash flow – something that this deal does, despite the impact to EBITDA. We are cautious of whether the deal improves Sprint’s actual business model or instead just moves some of the risk off balance sheet.” Schildkraut advises investors to “hold” their shares in the company and has a target price of $4 on the issue.

While Schildkraut is cautions UBS analyst John Hodulik is more upbeat and figures Sprint picks up some much needed, cheap money. “Management indicated the cost of capital is well below Sprint’s alternative in the high-yield market, creating an attractive financing opportunity. Sprint also amended its existing receivables facility to include the sale of future lease receivables (ex the residual value), boosting the maximum funding limit by $1 billion to $4.3 billion.” He’s quick to point out that Sprint had only $587 million available in October. He’s keeping his Neutral rating on Sprint and has a $5 target price on the issue. Macquarie Securities analyst Kevin Smithen in a research note issued Friday wrote, “We view today’s announcement as a major positive for Sprint shares and believe that this morning’s selloff will reverse once investors realize that Sprint’s cash burn rates will improve dramatically and the company can now focus on growth.” He has an “Outperform” rating on Sprint and a 12-month price target of $6.50. “S” shares closed down 22 cents (5.43 percent) at $3.83 on Friday.