SoftBank to help provide financing to rein in Sprint's cash burn

Reuters News
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Posted: Aug 04, 2015 4:30 PM

By Malathi Nayak

NEW YORK (Reuters) - SoftBank Group Corp, the majority owner of Sprint Corp, said on Tuesday it will set up two financing vehicles to help the struggling U.S. wireless carrier reverse its fortunes, but a long road to recovery lies ahead.

In a surprise appearance on Sprint's earnings call, SoftBank Chief Executive Officer Masayoshi Son allayed investors' fears by saying that the Japanese telecom, which owns 80 percent of the U.S company, was not looking to sell its stake.

Sprint's stock surged 4.5 percent to close at $3.49 on Tuesday.

Sprint burned $2.2 billion in cash the second quarter. It is locked in a price war with its rivals Verizon Communications Inc, AT&T Inc and T-Mobile US Inc which are going after each others' subscribers with promotions that have weighed on growth.

In addition, a growing number of Sprint's customers are shifting from two-year contracts to monthly leasing plans. That has delayed money coming into Sprint for phone payments and led to a cash burn as the company owes upfront device payments to vendors.

SoftBank, with other partners, will set up two separate funding vehicles to help Sprint finance its leasing payments and network upgrades, CEO Marcelo Claure, said on the call with analysts. Details on the partners and the structure of the company will follow in coming months, he said.

"SoftBank will be the minority partner," Son said on the call. "And we will provide together with our partner, as much as Sprint needs for the handset. Similarly, we are preparing a network equipment lease facility."

Investors feared that Sprint would need to have an equity or debt offering or a sale of its wireless airwaves to raise funds, Claure told Reuters in an interview.

"All we're doing is a way to neutralize the cash position so this is not about raising additional debt."

While SoftBank's support is encouraging, Sprint's financial health would take a while to improve, analysts said.

"Off balance sheet debt through new funding vehicles is still, well, debt," MoffettNathanson analyst Craig Moffett said in a note.

Sprint's debt is up to $34.1 billion from $32.5 billion since January.

New financing does not "change the fact that these are incremental obligations that are going to pile additional liabilities on top the company," BTIG analyst Walt Piecyk, said.

"(Marcelo) has made the numbers look less bad," S&P Capital IQ analyst Angelo Zino said.

"This is going to be a long and slow transition."

(Reporting by Malathi Nayak; Editing by Lisa Shumaker)