Telecom carrier Sprint is set to raise almost US$4bn from a bond backed by its spectrum, a deal some analysts say will further boost its liquidity and help better prepare for a potentially tough year ahead.
The deal launched roughly in line with price talk on Wednesday amid positive feedback from investors who liked the returns on offer.
“Spectrum is air, but it’s extremely valuable,” Todd Schomberg, senior portfolio manager at Invesco, told IFR.
“And we think it is an attractive yield in the current environment.”
The US$2.1bn Class A-1, with a seven-year maturity,launched at 212.5bp over US Treasuries to yield 4.73%. The US$1.8375bn Class A-2, with a 10-year maturity, launched at 240bp over US Treasuries to yield 5.15%.
That compared to price talk of 4.75%-4.875% and 5.15%-5.275%, respectively.
At those launch levels, the deal (rated Baa2/BBB) offered a decent pick-up to similarly rated corporate bonds that are yielding 4.08% on average, according to ICE BAML data.
“Spectrum is its most viable assets, and that’s why it is borrowing against it,” another investor said.
The company’s debut spectrum bond, a US$3.5bn five-year issue from October 2016, also performed well in secondary, the investor said.
“It was one of the more attractive deals of 2016 and we like the structure.”
CHEAPER OPTION
The cost of financing for Sprint, rated junk itself, was also cheaper than available in the high-yield market. Sprint’s US$1.5bn junk bond sale last month - the company’s first in three years - came with yields of 7.625% for eight-year debt.
“We are encouraged by Sprint’s efforts to diversify its financing sources and use its under-utilized spectrum to secure more attractive pricing,” CreditSights analysts said.
They predict a bumpy year ahead for the company, earning that Sprint could burn through cash as it ramps up network capex and focuses on moving customers to leasing plans. That comes as the company faces some significant debt maturities.
Sprint is in a better position liquidity wise after its two most recent bond sales, CreditSights said. But it has scope to improve its funding sources even more.
The analysts note the company has amended its outstanding spectrum-backed note indenture to allow for the issuance of spectrum-backed notes in excess of the US$7bn that will be reached after its latest ABS.
“We would not be surprised to see the carrier explore new secured financing alternatives to bolster its cash position,” said CreditSights.
