Sprint is Selling Most of its Network Hardware for $2.2 Billion and then Leasing it Back

[dgstorm]

It sounds like Sprint may have a great deal of red ink they need to get off their ledgers. According to the latest report, Sprint just signed a deal to sell most of their network equipment to Network LeaseCo for $2.2 billion in capital. Afterwards, Network LeaseCo will then lease that network hardware back to Sprint. Here's a quote with a few more details,

"Network LeaseCo will acquire certain existing network assets and then lease them back to Sprint. The assets acquired by Network LeaseCo will be used as collateral to raise approximately $2.2 billion in borrowings from external investors, including SoftBank. The $2.2 billion of cash proceeds Sprint expects to receive from the transaction is scheduled to be repaid in staggered, unequal payments through January 2018.

For accounting purposes, Sprint will consolidate Network LeaseCo and Sprint’s consolidated financials will reflect the cash proceeds it receives and the underlying debt of Network LeaseCo. The network assets involved in the transaction, which have a net book value of approximately $3 billion and consist primarily of equipment located at cell towers, will remain on Sprint’s consolidated financial statements and will continue to be depreciated. In addition, Sprint will record interest expense incurred in connection with the debt of Network LeaseCo." ~ BusinessWire

 

[xeene]

Wonder how this will effect dozens of carriers who lease sprint towers from sprint themselves.

 

[badtoy1986]

Wonder how this will effect dozens of carriers who lease sprint towers from sprint themselves.

Or the dozen customers who still use Sprint.

 

[Amagine]

. This is another iteration of the Real Estate Investment Trust. a couple years ago the IRS revised how these trusts can work. The revisions opened the way for telecom companies to off-load the taxes and depreciation of their physical plant and hardware. Thus helping off load their debt and allow for more capital flexibility. Several long haul telecom companies have done this and so far it looks favorable to both the newly created companies and the corporations themselves. Only time will tell though.
The lease deals are with Sprint, so it's up to Sprint to make sure they have the capacity to service those customers. Also if they structured the REIT deal right. Sprints still has sole operation of the equipment and plant. NetworkLeaseCo just owns it.

All that being said. Cell companies have been off loading towers to tower construction companies like Crown Castle for years.

 

[Jonny Kansas]

Goodbye Sprint...? Selling their hardware and then leasing it back? Paying interest on equipment you already owned to borrow money on it? Unless they intend to use that money to build the network out further and attempt to gain WAY more customers, I don't see how this is a good idea financially. It'll keep them afloat for a bit, but what happens when they fail to finish the payments due to lack of proper revenue?

 

[Jonny Kansas]

The revisions opened the way for telecom companies to off-load the taxes and depreciation of their physical plant and hardware.

Except for this bit here...

The network assets involved in the transaction, which have a net book value of approximately $3 billion and consist primarily of equipment located at cell towers, will remain on Sprint’s consolidated financial statements and will continue to be depreciated.

Looks to me like they're still on the hook for the depreciation of the equipment?

 

[Mustang02]

Or the dozen customers who still use Sprint.

Project fi is helping sprint.

Sent from my Nexus 5X using Tapatalk

 

[whippleman]

Except for this bit here...
Looks to me like they're still on the hook for the depreciation of the equipment?

The depreciation aspect would be a good thing as it's a tax benefit.

 

[tech_head]

Actually the way the deal is structured this is more of a lien against Sprint's capital equipment with those loaning the money in control of the company that now "owns" the equipment. Sprint is to payback the cash over several years.

Doen't sound much like a lease if your read the Wall Street Journal.