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High-yield return is ‘meaningfully positive,’ Moody’s says
Outstanding debt was worst performer in index Tuesday
Sprint Corp. sold junk bonds for the first time in three years as the fourth-largest U.S. mobile-phone company invests to upgrade its wireless network.
Sprint issued $1.5 billion of unsecured junk bonds in a sale it boosted from $1 billion, according to a person with knowledge of the matter. The eight-year notes, which the Overland Park, Kansas-based company can’t buy back, priced to yield 7.625 percent, after around 7.75 percent was discussed, said the person, who asked not to be identified as the details are private.
The deal put pressure on Sprint’s existing bonds, which were among the worst performers in the Bloomberg Barclays High Yield Index on Tuesday with the company’s 6.875 percent notes due 2028 dropping 1.34 cents on the dollar to 98.25 cents as of 5:23 p.m. in New York, according to Trace bond price data.
The bond sale marks Sprint’s first trip to the high yield market in three years nearly to the day. Chief Financial Officer Michel 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. Tuesday’s notes are ranked senior unsecured.
“Sprint returning to the high-yield bond market is a strong sign and also positive in that it’s a more balanced approach to the market,” said Mark Stodden, an analyst at Moody’s Investors Service who rates the company B2, five steps below investment grade. “It’s wise for Sprint to preserve its secured capacity for a rainy day, when the market conditions aren’t as favorable as they are today.”
The offering drew an upgrade from CreditSights, which moved its recommendation to outperform from market perform in a report Tuesday. While Sprint’s near-term hurdles are clear -- including its cash burn and competitive landscape -- its spectrum is “strategically very valuable” and “integral” to next-generation planning, analysts Chris Ucko, Lindsay Pacia Gibbons and Jay Mayers said in the report.
The collapse of merger talks with T-Mobile late last year left Sprint alone to face a competitive wireless market. Sprint, majority owned by Masayoshi Son’s SoftBank Group, lags behind rivals Verizon Communications Inc., AT&T Inc., and T-Mobile US Inc. in terms of subscribers.
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 said earlier this month. Its turnaround effort has made progress with a 10th consecutive quarter of customer gains in the three months that ended in December.
JPMorgan Chase & Co. and Goldman Sachs Group Inc. managed the bond sale, according to a filing Tuesday outlining the sale plan.