Sprint Selling Assets to Raise Cash as a Way to Manage Debt
Bill Menezes, an analyst with Gartner, told eWEEK in an email reply to an inquiry about the situation that such lease-back arrangements are not unusual but that he wonders if Sprint will be able to "successfully execute its strategy in the consumer market to regain enough share profitably to stop its ongoing losses and cash burn." At some point, Sprint "will run out of things to mortgage and Softbank either will have to decide to pump more money into the company or walk away," wrote Menezes. "They're betting they won't get to that point. If they do, it's Sprint's shareholders, not its creditors, who will suffer." The lease-back arrangemet, meanwhile, makes sense because the network assets have value and can be used to help "meet both the looming debt payments and cover their continuing cash burn," he wrote. Other carriers, including AT&T, T-Mobile and Verizon, have done similar deals, he added. "Sprint's going all-in on its success, literally mortgaging the farm in hope that it's turnaround is real and sustainable," wrote Menezes. "We'll need to see a few more quarters of improvement to gauge whether they are right."The company's "inability to generate profits in the short term, combined with their high level of debt, means it has to get creative to stay in good financial shape while management is trying to turn around the business," he wrote. "Obviously, long-term, Sprint still needs to turn around its business and get out from under the losses it's been generating and return to profit. In the meantime, though, it may continue to require these financial gymnastics to keep financially healthy." Jeff Kagan, an independent wireless analyst, told eWEEK via email: "as Sprint begins their recovery process, it looks like we will see them take these kind of creative steps on the financial side to help free up more cash for growth. In this case, Sprint is using the hidden value of the company to continue updating and expanding the network."
Another analyst, Jan Dawson of Jackdaw Research, wrote in an email reply to eWEEK that Sprint has in the past "done some unconventional things to try to protect and improve its cash position, and this seems to be another example of that strategy."