Sprint Corp. is paying above-market interest rates on new notes to become the leading issuer of U.S. junk bonds this year as it seeks to fund an expansion of the country's third-largest wireless network.
Sprint raised $2.5 billion Monday with securities due in June 2024 paying a coupon of 7.125 percent, 66 basis points more than the average yield for similar-maturity debt in the B credit rating tier, according to data compiled by Bloomberg. The sale adds to Sprint's more than $12 billion of issuance in the past 24 months to lead speculative-grade borrowers during two years of record annual offerings of at least $350 billion.
Enticing bond investors with higher-than-average coupons may help the Overland Park, Kansas-based company finance capital expenditures that are growing at a faster pace than AT&T Inc. and Verizon Communications Inc. Monday's sale followed a $6.5 billion offering in September that ranked as the biggest high-yield issue since 2008.
“Sprint has a lot of funding needs and has been undertaking a lot of capex,” said Scott Kimball, a fixed-income manager at Taplin Canida & Habacht LLC, a BMO Financial Group unit that oversees $8 billion and doesn't own Sprint bonds. “The supply is reflective of their own needs rather than investor demand.”
Average yields on junk bonds in the Bloomberg USD High Yield Corporate Bond Index have fallen to 5.88 percent from 6.55 percent at the time of the previous sale.
Majority ownership of Sprint was purchased by SoftBank Corp. in July for $21.6 billion, and the company has said it plans to spend $8 billion on network upgrades as it races to catch up with the larger AT&T and Verizon.
Softbank, the Japanese company founded by billionaire Masayoshi Son, owns stakes in more than 1,000 Internet businesses and is the third-largest mobile provider by sales in Japan behind NTT Docomo Inc. and KDDI Corp., according to data compiled by Bloomberg Industries.
Sprint has since issued more than the $8.1 billion borrowed by T-Mobile USA Inc. this year, aided by the Federal Reserve's policy of suppressing interest rates to support economic growth. The new Sprint bonds, which follow $362.5 billion of high-yield, high-risk issuance through last week, are ranked B1 at Moody's Investors Service and BB- by Standard & Poor's.
“Sprint has had seemingly endless access to the high-yield market and has consistently taken advantage of investor demand,” Scott Dinsdale, an analyst at KDP Investment Advisors Inc., wrote in a report yesterday.
Ratings Disadvantage
Scott Sloat, a Sprint spokesman, declined to comment on the company's finances. Proceeds may be used to retire or service outstanding obligations and to expand and modernize its network, the company said in a regulatory filing yesterday.
Sprint's junk rating leaves it with higher borrowing costs than investment-grade AT&T and Verizon, the latter of which issued a record $49 billion of bonds in September and paid 6.55 percent to borrow for 30 years. Sprint had an average weighted coupon of 7.78 percent before Monday's sale, compared with 4.47 percent at AT&T and 5.49 percent for Verizon.
The phone company that started offering local service in Abilene, Kansas, in 1899 lost 5 percent of its contract wireless subscribers in the year ended June 30, Bloomberg data show. Its North American market share declined to 12 percent last year from more than 18 percent in 2006.
Junk, or speculative-grade, bonds are rated below Baa3 by Moody's and BBB- at S&P. A basis point is 0.01 percentage point.
Sprint is betting the spectrum acquired in its July takeover of mobile broadband company Clearwire Corp. will help the company blanket the largest U.S. cities with a high-speed network for delivery of mobile video and streaming music.
Refitting with that technology under the project name Spark has led analysts surveyed by Bloomberg to estimate that Sprint will burn through $4.3 billion of cash in the next 12 months while Verizon and AT&T are together poised to generate about $26 billion of free cash that can be used for reinvestment, debt repurchases, or shareholder rewards such as dividends and buybacks.
“The concern is that you're spending all this money in an industry that's dominated by two large and more well-capitalized competitors,” said Marc Gross, a New York-based money manager at RS Investments, which bought the new bonds. “The question is, will they be able to drive customer growth?”
While Sprint has valuable spectrum assets and the implicit support of Softbank, the business is burdened by high leverage, weak margins and a cash burn that will probably continue through 2015, Moody's analysts wrote in a report yesterday. Sprint's $32.4 billion of long-term debt on Sept. 30 accounted for almost 37 percent of its assets, compared with a ratio of 33 percent at Verizon and 25 percent at AT&T, Bloomberg data show.
“Near flawless execution across all aspects of the business, including the requirement to quickly redesign and modernize its entire network, will be necessary before Sprint can hope to grow its market share in the brutally competitive U.S. wireless industry,” the Moody's analysts wrote.
Bloomberg News
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
