Sprint ends Q4 with $6.7 billion liquidity; financing talks continue

By Paul Deckelman

New York, Feb. 8 - Sprint Nextel Corp. ended the fourth quarter with $6.7 billion of liquidity, citing the impact of a big junk bond deal that the No. 3 U.S. wireless operator did during the quarter.

The company also confirmed previous guidance on its plans for raising additional funding for its ongoing network build-out, continuing talks with its various suppliers and anticipating having a vendor financing agreement in place soon.

The Overland Park, Kan.-based telecommunications company's chief financial officer, Joseph J. Euteneuer, said Wednesday that as of the end of the fourth quarter and 2011 fiscal year on Dec. 31, Sprint enjoyed a total liquidity position of $6.7 billion, including $5.6 billion of cash and cash equivalents and $1.1 billion of undrawn borrowing capacity under its revolving credit agreement.

That's a sequential improvement from liquidity at the end of the third quarter on Sept. 30 of $4 billion of cash and $1 billion of revolver availability.

Bond deal boosts liquidity

He noted that during the quarter, Sprint raised $4 billion through private placements. On Nov. 4, it priced a quickly shopped two-part junk bond offering that was massively upsized from the originally anticipated $2.5 billion to $3 billion range.

It priced $3 billion of 9% junior guaranteed notes due 2018 at par, upsized from the originally contemplated range of $2 billion to $2.5 billion, and $1 billion of non-guaranteed 11½% notes due 2021, which priced at par after the tranche was doubled in size.

"The proceeds of these notes significantly enhanced our liquidity position, allowing us to pay down $2.25 billion of notes due in March of 2012 ahead of schedule," the CFO declared. Those 8 3/8% notes were redeemed in full on Dec. 29.

With that obligation out of the way, Euteneuer said that Sprint's next loan maturity, totaling $300 million, is due in May 2013, followed by a $1.5 billion maturity in the fourth quarter of 2013.

As of the end of the fourth quarter, Sprint's long-term debt, financing and capital lease obligations stood at $20.26 billion, versus $16.27 billion at the end of the third quarter and $18.54 billion at the end of 2010.

Capital-raising plans

Euteneuer said that following those fourth-quarter debt transactions, "we believe we have a clear runway to allow us to continue the investments in the iPhone and in Network Vision."

He had previously said that Sprint plans to raise between $5 billion and $7 billion to cover anticipated cash shortfalls between now and 2015 as it invests heavily in its capital-intensive Network Vision 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 for customers across the United States.

Sprint, like bigger rivals Verizon and AT&T, also continues to spend considerable money subsidizing subscriber purchases of Apple Inc.'s hot new iPhones as an incentive to get people to sign contracts for its monthly billed post-paid service.

Sprint has estimated that costs related to Network Vision and the iPhone will likely impact its cash position over the next several years by $5.5 billion, only partially offset by the $1.1 billion of benefits it expects to generate from them. The cash drain is expected to continue through 2013; only in 2014 are Network Vision's benefits to the company expected to exceed costs, and that won't happen for the iPhone until 2015.

While the company expects to still be generating cash flow from its core operations to partially offset those costs, it will also have the debt maturities coming due.

On the conference call, Euteneuer said that the previously announced $5 billion-to-$7 billion funding plan, which would include incremental vendor financing from its telecom technology suppliers Alcatel-Lucent, Ericsson and Samsung in the area of $1 billion to $3 billion to cover a portion of its Network Vision costs, "remains our intention."

The CFO said that "our discussions regarding vendor financing are progressing well with all of our vendors. It is a time-consuming process because it involves multiple parties, but we are pleased with our progress to date.

"Our continued expectation is that we will have an agreement in place before the end of the second quarter. In the meantime, we continue to watch the debt markets, and we will be opportunistic with our options."

Loss widens from last year

For the quarter, Sprint heralded such positive financial milestones as net new additions to its customer subscriber base and record high overall customer count, improved subscriber churn, or loss of accounts, revenue gains in key areas and the continued rollout of what it calls its "Sprint platform" of services, particularly as it winds down the old "Nextel platform" that served customers of the former Nextel Communications before, and even after, Nextel's 2005 acquisition by and integration into Sprint.

However, it continued to lose money, reporting a reported a net loss of $1.3 billion and a diluted loss of 43 cents per share for the quarter. That included pre-tax non-cash charges of $241 million, or 8 cents per share, consisting of asset and impairment charges of $78 million on property, plant and equipment, $135 million on Sprint's investment in 42% owned affiliate Clearwire Corp. - a partner in Sprint's network - and $28 million in severance costs. That contrasts with year-earlier red ink of $929 million, or 31 cents per share.

Excluding charges and other unusual items, the adjusted net loss in the latest quarter was 35 cents per share, a penny or two better than Wall Street was anticipating.

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