Sprint Filings

In all honesty, it doesn't take much to confuse me anymore. For example, I am confused as to how anyone can let an Asian woman drive a car without fearing for their life, find Kathy Griffin funny, or consider Renee Zellweger pretty (she looks like an ant eater crossed with a horse). But I am even more confused by Sprint's latest filing in which they are issuing an additional $1.3 billion in unsecured debt. Before I delve into my lack of understanding, let's look at the summary of the offering: (click pic to view larger image)



Essentially, Sprint is offering up $1.3 billion in bonds in which they will pay 8.375% in interest until the bond matures in August 2017*. The bonds are unsecured (i.e. if Sprint goes bankrupt you might not get your money back) and can be called (by Sprint) before the maturity date. All of that is relatively straightforward. The question I have is this: why the offering?

In the same filing, it is noted that "as of June 30, 2009, our consolidated indebtedness was approximately $21.0 billion." And, more tellingly, is this part:

The degree to which we incur additional debt could have important consequences to holders of the notes, including:

•	limiting our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes;
•	requiring us to dedicate a substantial portion of our cash flows from operations to the payment of indebtedness and not for other purposes, such as working capital and capital expenditures;
•	limiting our flexibility to plan for, or react to, changes in our businesses;
•	making us more indebted than some of our competitors, which may place us at a competitive disadvantage; and
•	making us more vulnerable to a downturn in our businesses.

The second bullet above is something I've touched on a few times (score one for me) - namely that Sprint is going to have use its cash flow to pay off debt. So we agree, in this case, debt is bad. So, more debt makes that problem worse. Besides all of that, they already have "a $4.5 billion revolving credit facility." So, again, why the debt offering and, more importantly, why now?

As it is explained, Sprint intends to use the "net proceeds from this offering for general corporate purposes." That, to me, means absolutely nothing; it is annoyingly - and I assume purposefully - vague. That could be a $1.3 billion raise for Hesse - lord knows he deserves it - for all I know. Or, maybe it's so Bob Brust can take some more non-business flights around the country. I hear the Rockies are nice this time of year.

So, much like usual, I do not have the answers. My best guess is they are going to use it to pay short-term maturing debt in hopes of saving some cash flow and then (hopefully) they can make the bond payments in due time. In other words, borrow from Creditor B so you can pay off Creditor A and then pay off Creditor B after Sprint stabilizes. And, if that is what they're banking on, well...I'm not sure who's more confused then - me or Sprint.


* - After underwriting and commissions, the net proceeds to Sprint (before expenses) is $1,258,725,000.