U.S. network operator Sprint has signed a deal with Mobile Leasing Solutions. Sprint is looking to raise $1.1 billion in cash proceeds through the sale and lease-back deal.
Mobile Leasing Solutions is backed by Japan-based SoftBank Group and the deal is anticipated to close by first week of December.
"Sprint and SoftBank have worked together to create a unique structure that advances a very high percentage of the total value of certain devices leased to our customers, including the device residual values. Providing mobile devices to customers is the biggest use of cash in the carrier model and with this new structure we have more closely aligned Sprint's cash flows with those associated with leasing devices to our customers," noted Tarek Robbiati, CFO of Sprint.
However, after the announcement of the deal with Mobile Leasing Solutions, Sprint's shares slipped 6.2 percent to $3.80 per share on Friday, Nov. 20, late morning trading.
Robbaiti revealed that Sprint is expecting an operating loss of $50 million to $250 million for the year. By comparison, the previous forecast for the U.S. carrier was a profit between $200 million to $500 million.
The carrier also reduced its forecast for full-year adjusted EBITDA from $7.2 billion-$7.6 billion to $6.8 billion-$7.1 billion.
The lease-back deal is looking to decrease the costs which are a consequence of shifting to new financing plans for smartphones, which permit monthly payments from two-year contracts.
Owing to the new plans, the money flowing in for smartphone payments is getting delayed. This has resulted in a cash crunch as Sprint needs to clear payments to the OEMs.
While Sprint's investors would have been optimistic about the deal lifting the carrier's fortunes, analysts believe that the deal is smaller than thought. Investors are worried that Sprint has been dealing with cash burn at an alarming rate.
The drop in Sprint's share prices is reflective of investor's reducing confidence. Whether Sprint will be able to win back the confidence remains to be seen. The carrier is optimistic that it can sell 2.5 million leased devices to Mobile Leasing Solutions, which have an anticipated value of $1.3 billion in books.