Reaction by Wall Street analysts to Sprint’s leaseback deal has been mixed, Inside Towers has reported. Now a Wells Fargo Securities analyst says the carrier isn’t getting enough credit for the arrangement.
Sprint proposed a $3.5 billion sale and leaseback; It’s the third and final part of the plan by SoftBank Group Corp. owner Masayoshi Son to use special-purpose entities to turn key assets into cash.
Wells Fargo Senior Analyst Jennifer Fritzsche said in a report on Friday the leaseback deal lowers the carrier’s debt cost and will likely boost free cash flow generation. “Once Sprint gets beyond the December payment ($2.3B due in 12/2016) its next three maturities are coupons which are between 8 3/8 percent and 9 1/8 percent,” wrote Fritzsche. “Therefore, this deal could be immediately be accretive on a FCF basis, as Sprint should be able to significantly lower its interest expense and put its Net Operating Losses to work.”
Fritzsche said the deal values Sprint’s spectrum higher than Wall Street has, at around $117 billion.
While Fritzsche’s analysis prompted some spirited replies she countered with the following statement over the weekend:
“…no part of this call was to say S is worth $20/share on spectrum alone,” she said. “This clearly is a circular argument because no one carrier can pay this amount, and this spectrum is not for sale. The point we were trying to make is even if you haircut by 50 percent, the value is still significantly above what anyone imagined for the 2.5GHz (recall S purchased Clearwire assets at $0.30 /MHz/POP). Our other point was that Investment Grade debt (albeit in a very non-traditional way) should significantly lower its overall cost of debt (which today is north of 7 percent). And remember when we visited S’s headquarters in KS on 6/21/16, “high grade” was not even a part of any conversation – or close to it. And while we know S’s stock is up 95 percent YTD (vs. a +4.5 percent move in the S&P) – we still think there are legs here given this announcement helps us see a clearer path to positive FCF,” she said.
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