SoftBank, Sprint, and T-Mobile’s wheeling and dealing in 2013

Market Realist

The latest word in telecom: Can SoftBank swing a T-Mobile deal? (Part 2 of 7)

(Continued from Part 1)

Highlights of the Sprint (S) acquisition

On July 6, 2013, the Federal Communications Commission approved SoftBank’s (SFTBF) acquisition of Sprint for $22.2 billion for a 78% stake in Sprint (S). The investment was split between $17.2 billion paid to Sprint (S) shareholders by way of cash, with the balance $5 billion as capital infusion. The transaction was financed entirely through cash on hand and debt. Initially, Softbank (SFTBF) arranged a bridge loan through a banking consortium, although the company planned to refinance at a later date.

Following the deal, credit rating agencies Standard & Poor’s and Moody’s downgraded SoftBank (SFTBF) debt to junk, assigning ratings of BB+ and Ba1, respectively. Japanese ratings agency Japan Credit Ratings Ltd. (or JCR) also responded to the acquisition announcement with a ratings downgrade of one notch, to A- with Stable outlook. Sprint (S) debt, meanwhile, ramained rated junk by both S&P and Moody’s. Junk bond ETFs like the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the SPDR Barclays Capital High Yield Bond ETF (JNK) both have over 1% of their assets invested in Sprint (S) debt.

Highlights of the Deutsche Telekom, or DT (DTEGY), T-Mobile US Inc. (TMUS), and MetroPCS deal

  • A reverse acquisition deal completed on April 30, 2013, between T-Mobile USA and MetroPCS
  • Deutsche Telekom, or DT (DTEGY), owning 67% of T-Mobile USA, recapitalized T-Mobile USA, and the new entity TMUS:
    • Retired the company’s long-term debt to affiliates $14.5 billion
    • Received unsecured senior notes for $11.2 billion and balance as additional paid in capital
    • Received $500 million unsecured revolving credit facility from DT (DTEGY)
    • In October 2013, DT (DTEGY) sold an additional $5.6 billion in senior unsecured notes to third parties, which was classified under the heading of long-term debt from long-term debt to affiliates
  • The MetroPCS debt assumed by T-Mobile as part of the business combination was $6.3 billion, MetroPCS shareholders paid $1.5 billion in cash, and 74% of fully diluted shares in the common stock of the new company were issued to DT (DTEGY)
  • Total long-term debt outstanding at the end of 2013 was ~$19.9 billion

Debt and equity issued in 2013 by T-Mobile US Inc. (TMUS)

  • $2.5 billion in senior secured notes
  • $1.8 billion public share offering in November 2013, which reduced Deutsche Telekom’s (DTEGY) stake from 74% to 67%

To read about Sprint (S) chairman Masayoshi Son’s views on telecom sector consolidation represented by a Sprint (S) and T-Mobile (TMUS) deal, please continue to Part 3 of this series.

Continue to Part 3

Browse this series on Market Realist:

View Comments (0)