The third-largest U.S. wireless carrier Sprint Nextel Corp. (S) plans to raise $2 billion in debt offering to address the growing costs of network upgrade, iPhone subsidies, debt maturities and a possible funding for its partner Clearwire Corporation (CLWR). With a 54% economic stake in Clearwire, Sprint offers high-speed data to its subscribers through the latter’s 4G WiMax (a wireless broadband technology) networks.
Sprint will sell notes due in 2017 and 2020 through a private placement, expected to completed by March 1. This sale of notes is in addition to the $4 billion raised in November last year. Sprint is taking advantage of the falling interest rates in the capital market as it is in the midst of a multibillion-dollar network upgrade.
The company is concentrating on the core Sprint platform, which includes CDMA, WiMAX, Long-Term Evolution (LTE), and other network technologies. Sprint is advancing on its Network Vision plan as it started terminating the Nextel platform, which refers to the iDEN business. The company is switching to the 4G upgraded version, LTE technology, and plans to launch in the 1.9 GHz band in mid 2012 with full deployment by year-end 2013.
We believe the network upgrade will be beneficial for Sprint as it has been losing money to its largest rivals AT&T Inc. (T) and Verizon Communications Inc. (VZ) over the past few years.
Additionally, though Apple Inc‘s (AAPL) iPhone is treated as a fresh breath of life for Sprint, it is expected to pressure OBITDA in initial years before beginning to contribute in 2015. Sprint has promised to pay $15.5 billion to Apple over the next four years to promote the product. Therefore, the company has to pay 40% more subsidy than other smartphone that equates to more than $200 per device.
Further, the debt sale comes after the rumors that the board of Sprint terminated a plan to acquire MetroPCS Communications Inc. (PCS) for $8 billion, as the deal seems expensive given the current price.
We currently maintain our long-term Neutral recommendation on Sprint. For the short term (1-3 months), the stock retains a Zacks #3 (Hold) Rank.
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