(Bloomberg) -- Sprint Corp. is issuing its second round of spectrum-backed bonds as the company invests in upgrading its wireless network.
The fourth-largest U.S. mobile phone carrier is selling as much as $3.94 billion of bonds in two parts, according to a statement Monday. The offering will be split between debt maturing in seven and 10 years, according to a person with knowledge of the matter, who asked not to be identified as the details are private.
Sprint first issued spectrum-backed bonds in October 2016. Earlier this year, there was speculation that the company had defaulted on these bonds by transferring assets into a restricted subsidiary, according to analysts from firms including Covenant Review and Xtract Research. The analysts rejected that interpretation, as does Chief Financial Officer Michel Combes.
“There’s been no break or violation of covenants related to our spectrum program,” Combes said in an interview Monday. “We moved a little faster on high yield because the market conditions were right. It took a little longer to make the spectrum deal work.”
Combes said on a Feb. 2 earnings call that the company would look to issue its second round of spectrum-backed bonds “in the next coming weeks” or to tap other markets, such as high-yield debt. It sold $1.5 billion of junk bonds last month, the first time in three years. Moody’s Investors Service rates Monday’s securities Baa2, two steps above speculative grade.
The previous spectrum-backed issue for $3.5 billion has since been amortized to about $3.1 billion. Monday’s offering will bring the total for the program back up to $7 billion, the original amount that Sprint had set out to borrow based on the amount of spectrum available to the facility.
The collapse of merger talks with T-Mobile US Inc. late last year left Sprint alone to face a competitive wireless market. Now it is building a next-generation network known as “5G” that will be faster than the current 4G offering. The company hopes to lift prices as a result, Chief Executive Officer Marcelo Claure has said.
It will take a lot of spending to get there. Sprint plans to dish out $5 billion to $6 billion in capital expenditure in the next several fiscal years, CFO Combes said in a presentation this month. Including spending on handsets leased to customers and capitalized interest, that suggests total capital expenditures of up to $8 billion annually, according to Bloomberg Intelligence analyst Stephen Flynn.
“Despite a massive debt load, they may not produce any free cash flow for the next several years,” Flynn said in an interview.
Goldman Sachs Group Inc., JPMorgan Chase & Co. and Mizuho Financial Group Inc. are managing the bond sale, the person said. The company will market the deal to investors through Tuesday and price after that.
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