Sprint swaps debt for cheaper coupons, plans to cut interest expense

By Devika Patel

Knoxville, Tenn., May 3 – Sprint Corp. has replaced expensive bank debt and bonds with cheaper money over the past two quarters, diversifying its sources of funding.

The company’s management says that it is entering a new phase, in which Sprint seeks to lower its debt interest expense, which will be followed by a third phase in which the company seeks to delever and reduce its net debt.

“During the quarter, we replaced our $3.3 billion unsecured revolving credit facility with a new $6 billion secured credit facility, consisting of a $4 billion seven-year term loan B and a $2 billion four-year revolving bank credit facility,” chief financial officer Tarek Robbiati said on the company’s fourth quarter and year-end earnings conference call on Wednesday.

“This represents the latest example of our strategy to diversify our sources of financing in order to lower our cost of capital and future interest expense.

“We have retired $3.3 billion of bonds that matured in the last two quarters, with coupons between 6% [and] 14.75%, which is a cost of debt two to four times higher than the new money coming in,” Robbiati said.

“Having diversified our sources of funding and liquidity, we are now delivering the second phase which is to materially reduce interest expense.

“The third phase is to materially delever the company and reduce our net debt to sustain free cash flow generation,” he said.

Robbiati noted that the company has adequate liquidity and will now focus on lowering the cost of its debt.

“We have plenty of liquidity on our balance sheet,” Robbiati said.

“We are now entering into a new phase where we intend to lower the cost of debt,” he said.

The company’s top executive weighed in on the company’s solid position.

“We’re sitting on our best liquidity,” president and chief executive officer Marcelo Claure said on the call.

“We’ve delivered the best financial results of the last 10 years,” Claure said.

Sprint’s adjusted EBITDA for the year was nearly $10 billion, an improvement of $1.8 billion, or 22%, compared to a year ago. This was the highest reported adjusted EBITDA for the company in nine years.

For the fiscal fourth quarter, the company reported adjusted EBITDA of $2.7 billion.

Adjusted free cash flow for the year was $607 million, compared to negative $1.4 billion for fiscal year 2015.

Total liquidity was $10.9 billion at the end of the quarter, including $8.3 billion of cash, cash equivalents and short-term investments.

In January, Sprint increased its seven-year term loan B to $4 billion from $1.5 billion and lowered pricing to Libor plus 250 basis points.

The term loan B still has a 0.75% Libor floor and 101 soft call protection for six months.

J.P. Morgan Securities LLC was the lead bank on the deal.

Proceeds were used for general corporate purposes.

Sprint is an Overland Park, Kan.-based communications services company.

© 2015 Prospect News.
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