Sprint’s handset sales and leaseback agreement
In the previous part of the series, we learned about T-Mobile’s (TMUS) new offer for Sprint (S) customers. Sprint recently signed a handset sales and leaseback agreement with Mobile Leasing Solutions (or MLS). On November 23, 2015, Moody’s commented positively on Sprint’s move.
According to Moody’s, “Moody’s views the establishment of this sale/leaseback mechanism as credit positive and it has the potential to be a catalyst for a stabilization of the ratings outlook if it provides a reliable, cost effective and material source of future liquidity.”
According to Sprint, the expected first tranche of the deal is for approximately 2.5 million devices. These devices carry ~$1.3 billion book value and are to be sold for a total consideration of ~$1.2 billion.
Sprint also said that ~$1.1 billion is the cash component of this consideration, and the differential amount is deferred consideration that MLS may use to cover some possible losses related to the devices.
Leased devices in net property, plant, and equipment
Sprint had ~$3.6 billion of leased devices in net property, plant, and equipment at the end of fiscal 2Q15 (calendar 3Q15). In that quarter, the company added ~$780 million to this figure.
Instead of taking a direct exposure to Sprint stock, you may consider taking a diversified exposure by investing in the iShares US Telecommunications ETF (IYZ). IYZ had ~3.5% of its holdings in Sprint at the end of September 2015. It held a total of ~28.1% in Verizon (VZ), AT&T (T), and T-Mobile (TMUS) on the same date.