Sprint Nextel satisfied with recent mega bond deal, funding strategy

By Paul Deckelman

New York, Dec. 1 - Sprint Nextel Corp. - fresh off a whirlwind of financial announcements this week relating to its existing debt and to its relationship with its Clearwire Corp. affiliate - is satisfied with its recent big bond deal despite its somewhat unorthodox structure, confident that its previously outlined funding plans will be able to meet its needs and optimistic about the benefits of its new agreement with Clearwire.

The agreement was Thursday's big news from Overland Park, Kan.-based wireless carrier Sprint and Clearwire, its Kirkland, Wash.-based broadband network provider affiliate. Sprint chief financial officer Joseph J. Euteneuer declared, "I think the way to look at it is we just forged a whole new relationship with these guys."

Clearing up Clearwire questions

In addressing attendees at the Bank of America Merrill Lynch Leveraged Finance Conference on Thursday, the CFO seemed to be trying to reassure a financial community that had been shaken by seemingly ambiguous statements from Sprint executives about the viability of the relationship between the two companies when the wireless giant held its investor day presentation back on Oct. 7. The resulting speculation that Sprint might eventually cut Clearwire loose after next year and go it alone on building out its next-generation network caused financial market turmoil, including declines in the bonds and shares of both companies.

"I hope everyone gets the fact that there's this new level of cooperation by the two teams, and there was a lot of thoughtfulness to go into this to really make us both competitively successful for not only today but into the future," he asserted.

Under the terms of the agreement announced Thursday, Sprint, which owns 49.6% of Clearwire, may provide Clearwire with a total of up to $1.6 billion of cash payments under various circumstances over the next four years in the form of payments for WiMAX wireless internet services, possible prepayments to encourage Clearwire's buildout of technology for LTE high-speed data services and potential equity investments.

Sprint - which already had an agreement to pay Clearwire $550 million next year for use of its WiMAX network to provide Sprint customers with wireless internet services - will now pay a total flat fee of $926 million to Clearwire through 2013 for unlimited use of its network, two-thirds of it next year and the rest in 2013. It also set a pricing schedule for usage in 2014 and beyond. Sprint will have access to the network through at least 2015, will continue selling WiMAX-capable devices with two-year contracts through at least 2012 and will support those devices through the life of the contract.

Sprint also agreed to pay Clearwire up to $350 million in a series of prepayments for a period of up to two years for LTE data capacity if Clearwire achieves certain build-out targets and network specifications by June 2013.

And if Clearwire taps the equity markets to raise up to $700 million of new capital, Sprint committed to participate in the offering on a pro-rata basis and spend up to $347 million so as to maintain its current stake of just under half of Clearwire's voting shares.

Euteneuer told a questioner who asked whether Sprint would need to tap the capital markets itself in order to fund its new commitments to Clearwire that "the good news is we've gone out and raised money" with last month's $4 billion two-part bond deal. He said that quick-to-market transaction had alleviated "the overhang pressure of everyone, that we had the ability to access the capital markets."

Sprint on Tuesday announced plans to completely redeem all $2 billion of its outstanding Sprint Capital Corp. 8 3/8% notes that were to come due next year, eliminating all 2012 obligations, and it has no really large maturities due until the end of 2013. With only relatively modest debt maturities for most of the next two years, the CFO said, "We have plenty of runway room to look at whether we can manage to do this on the existing cash we have, or do we need something incremental" to meet the Clearwire commitment.

Bond deal was beneficial

Euteneuer said that last month's big and somewhat unusually structured Sprint bond deal was something the company had to do, if only to prove that it could still access the capital market. The company sold $3 billion of 9% junior guaranteed notes due 2018 and $1 billion of 11½% non-guaranteed notes due 2021, pricing both upsized tranches at par on Nov. 4.

"We bought ourselves some runway room, and I think we'll be practical [going forward in future deals]," he said. "I think we took a practical approach about what we just got done, and I think we'll continue to take that same practicality as we move forward."

When asked if this would force the company to offer similar guarantees or unusually high coupons to get any future deals done, the CFO replied that he "wouldn't think so."

He acknowledged that the unsecured piece of the deal "was at clearly a much higher rate than we could have done in the past," adding that "what we have to do is monitor the marketplace and look at what's going on, and we can make those determinations there."

He also said that "part of the success of us going forward in what we're able to do in the debt markets will be on our execution. I think as we continue to execute in a positive fashion, it should help."

Working on vendor financing

On its conference call following the release of third-quarter numbers at the end of October, Sprint disclosed that it faces heavy capital spending costs as it continues to roll out its "NetworkVision" initiative, which the company describes as "a cutting-edge network evolution plan" aimed at consolidating existing multiple network technologies into one seamless network in order to deliver enhanced voice quality and data speeds to U.S. customers. It said at that time that it will have to raise between $1 billion and $3 billion of incremental vendor financing to help defray the cost.

Euteneuer said Thursday that Sprint is right now working on that with the three technology companies it is partnering with, Alcatel-Lucent, Ericsson and Samsung.

He said that lining up such financing "is a little more complicated than just going out and doing high yield in the open market place," and he projected that it would probably take until "the first or second quarter [of next year] before that can get completed. But we're working with them right now and going through the process and feel very confident about it."

Asked whether Sprint will follow up on Tuesday's announcement calling the $2 billion of 8 3/8% 2012 notes with further redemptions, the CFO said the company had not thought much till now about possibly taking out the 2013 maturities.

"Up till [Wednesday], I think the 2013s were trading under par, so I think that's why we haven't done anything on that. But clearly, we will look, opportunistically, to take advantage of what we can on our capital structure and look for the best investment on our dollars. We don't want to have idle cash just to have idle cash. So we'll look at it appropriately."

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