Sprint Bonds: Dramatic Progress, But More To Do

Since our first analysis of Sprint Corporation (S) posted September 9, 2013, there have been a number of encouraging developments for the bond holders of the company. Sprint Corporation is one of the most complex credits in the world. Sprint Communications, Inc., the former Sprint Nextel Corporation, is now a subsidiary of parent Sprint Corporation which in turn is 80% owned by SoftBank Corporation (OTCPK:SFTBY), (OTCPK:SFTBF) of Japan and its affiliates. SoftBank's original purchase of 78% of the company was supplemented by the acquisition of an additional 2% stake beginning on August 1, 2013. We summarize the corporate ownership below using SEC filings. This note uses the default probabilities of Sprint Corporation and bond credit spreads of Sprint Communications, Inc. to measure the reward-to-risk ratio on the company's bonds. Today's study incorporates Sprint Communications, Inc. bond price data as of January 10, 2014. A total of 376 trades were reported on 4 fixed-rate non-call bond issues of Sprint Communications, Inc. with trading volume of $43.7 million.

We conclude that Sprint Corporation has made significant progress in re-establishing liquidity via the transaction with SoftBank and that the return to risk ratio for bond holders has significantly improved. We caution investors, however, that risk remains high and that an investment in the bonds of Sprint Corporation is best reserved for those with special insights into the intents of SoftBank regarding the future of Sprint Corporation.

The SoftBank Transaction and Other Recent Transactions

The 10-q filing by Sprint Corporation with the Securities and Exchange Commission for the quarter ended September 30, 2013 describes a recent acquisition and the transaction with SoftBank as follows:

Significant Transactions

On November 6, 2012, Sprint Communications entered into a definitive agreement with United States Cellular Corporation (U.S. Cellular) to acquire personal communications services (PCS) spectrum and customers in parts of Illinois, Indiana, Michigan, Missouri and Ohio, including the Chicago

This article was written by

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Donald R. van Deventer is a Managing Director in the Center for Applied Quantitative Finance at SAS Institute, Inc. Prior to the acquisition of Kamakura Corporation by SAS on June 24, 2022, Dr. van Deventer was the Chairman and Chief Executive Officer of Kamakura Corporation. He founded the Kamakura Corporation in April, 1990. The second edition of his book, Advanced Financial Risk Management (with Kenji Imai and Mark Mesler) was published in 2013.  Dr. van Deventer was senior vice president in the investment banking department of Lehman Brothers (then Shearson Lehman Hutton) from 1987 to 1990. During that time, he was responsible for 27 major client relationships including Sony, Canon, Fujitsu, NTT, Tokyo Electric Power Co., and most of Japan's leading banks. From 1982 to 1987, Dr. van Deventer was the treasurer for First Interstate Bancorp in Los Angeles. In this capacity he was responsible for all bond financing requirements, the company’s commercial paper program, and a multi-billion dollar derivatives hedging program for the company. Dr. van Deventer was a Vice President in the risk management department of Security Pacific National Bank from 1977 to 1982. Dr. van Deventer holds a Ph.D. in Business Economics, a joint degree of the Harvard University Department of Economics and the Harvard Graduate School of Business Administration. He was appointed to the Harvard University Graduate School Alumni Association Council in 1999 and served through 2021. Dr. van Deventer was Chairman of the Council for four years from 2012 to 2016. From 2005 through 2009, he served as one of two appointed directors of the Harvard Alumni Association representing the Graduate School of Arts and Sciences. Dr. van Deventer also holds a degree in mathematics and economics from Occidental College, where he graduated second in his class, summa cum laude, and Phi Beta Kappa. Dr. van Deventer speaks Japanese and English.

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