Item 1.01
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Entry into a Material Definitive Agreement.
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Handset Sale Leaseback
On April 28, 2016, certain wholly-owned subsidiaries (each, an
Originator
and, collectively, the
Originators
) of Sprint Corporation (
Sprint
) entered into a series of agreements (the
Handset Sale Leaseback (Tranche 2)
) to sell, for an aggregate purchase price of approximately $1.2 billion,
subject to adjustment, certain iPhone
®
devices (each a
Device
and, collectively, the
Devices
) subject to customer leases (each a
Customer
Lease
and, collectively, the
Customer Leases
) with Sprint customers (
Customers
) to Mobile Leasing Solutions, LLC, a Delaware series limited liability company, acting for itself and on behalf of Series
2 thereof (
Mobile Leasing
). The Devices will simultaneously be leased back by the Lessees (as defined below). The Customer Leases were all entered into under Sprints
iPhone
®
Forever or iPhone
®
For Life programs. The Handset Sale Leaseback (Tranche 2) will provide additional
liquidity and funding for the ongoing business needs of Sprint and its subsidiaries. The consummation of the transactions under the Handset Sale Leaseback (Tranche 2), including payment of the Cash Purchase Price (defined below), is expected to
occur during the second week of May 2016 (the
Closing Date
), subject to the satisfaction of customary closing conditions.
The material documentation for the Handset Sale Leaseback Tranche 2 includes (i) the First Step Transfer Agreement (Tranche 2), dated as
of April 28, 2016 (the
First Step Transfer Agreement (Tranche 2)
), among the Originators, special purpose bankruptcy remote Cayman Islands limited liability companies that are wholly owned subsidiaries of the Originators
(each, a
Lessee
and, collectively, the
Lessees
) and Sprint Spectrum L.P. (
Sprint Spectrum
), (ii) the Second Step Transfer Agreement (Tranche 2), dated as of April 28, 2016 (the
Second Step Transfer Agreement (Tranche 2)
), among the Lessees and Mobile Leasing, (iii) the Master Lease Agreement (Tranche 2), dated as of April 28, 2016 (the
Master Lease Agreement (Tranche 2)
),
among Mobile Leasing, the Lessees, Sprint Spectrum and Mizuho Bank, Ltd., as Collateral Agent, (iv) the Performance Support Agreement (Tranche 2), dated as of April 28, 2016 (the
Performance Support Agreement (Tranche
2)
), by Sprint in favor of Mobile Leasing and (v) the Guaranty (Tranche 2), dated as of April 28, 2016 (the
Guaranty (Tranche 2)
) by Sprint in favor of Mobile Leasing.
Pursuant to the First Step Transfer Agreement (Tranche 2), each Originator will contribute to its related wholly-owned Lessee (i) on the
Closing Date, selected Devices (each, a
Closing Date Device
and, collectively, the
Closing Date Devices
) and related Customer Leases (a
Closing Date Customer Lease
and, collectively, the
Closing Date Customer Leases
) and (ii) subject to exercise by the relevant Lessee of its Upgrade Termination Option (as defined below), on each date a Customer exchanges a Device (each, an
Exchanged Device
,
and collectively, the
Exchanged Devices
) for a next generation device (each, an
Upgraded Device
and, collectively, the
Upgraded Devices
) pursuant to the iPhone
®
Forever Program (each such exchange, a
Customer Upgrade
and each date a Customer Upgrade occurs, an
Upgrade Date
) during the term of a Device Lease (as
defined below), the Upgraded Device and the related Customer Lease (an
Upgraded Customer Lease
and, collectively, the
Upgraded Customer Leases
). The relevant Lessee has an option (the
Upgrade
Termination Option
) to reverse the contribution of the Upgraded Device at the time it also reverses the sale of any Upgraded Device to Mobile Leasing and the related leaseback (described below). Upon the effective exercise by the Lessee of
its Upgrade Termination Option with respect to a Device, the Device Lease for the Exchanged Device will terminate and any sale and leaseback of the Upgraded Device will be deemed not to have occurred.
Simultaneously with the contribution described above, pursuant to the Second Step Transfer Agreement (Tranche 2), (i) on the Closing
Date, each Lessee will sell the Closing Date Devices and transfer certain residual rights in the Closing Date Customer Leases to Mobile Leasing in consideration for the payment by Mobile Leasing (as to each Closing Date Device, a
Related
Closing Date Purchase Price
and, in the aggregate, the
Closing Date Purchase Price
) of (a) a cash purchase price of approximately $1.1 billion (the
Cash Purchase Price
) payable on the Closing
Date, (b) a deferred purchase price of approximately $186.3 million, subject to adjustment, payable July 28, 2018 unless otherwise agreed (the
Final Settlement Date
) and (c) a contingent purchase price also payable
on the Final Settlement Date and (ii) subject to the exercise by the relevant Lessee of its Upgrade Termination Option, on each Upgrade Date during the term of the Device Lease for a Device, each Lessee will sell the relevant Upgraded Device
and transfer certain residual rights in the related Upgraded Customer Lease to Mobile Leasing in consideration for a purchase price (each, a
Related Upgrade Purchase Price
) equal to the Related Closing Date Purchase Price that was
or would have been payable in respect of the Exchanged Device, subject to certain adjustments (i.e., no additional cash purchase price will be paid for the Upgraded Device). On the Closing Date, each Lessee will distribute the portion of the Cash
Purchase Price it received to its parent Originator.
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Simultaneously with the sale of the Devices and certain residual rights in the Customer Leases to
Mobile Leasing, Mobile Leasing will lease back each Device to the relevant Lessee pursuant to a device lease that will be comprised of the Master Lease Agreement (Tranche 2) and a lease schedule (together, the
Device Lease
) in
exchange for monthly rental payments (the
Device Lease Rental Payments
) to be made by the Lessees to Mobile Leasing. The Lessees have an option to terminate a Device Lease early upon payment of the early termination amounts set
forth in the Master Lease Agreement. Unless a Device Lease is terminated early, the Lessees will be obligated to pay the full Device Lease Rental Payments under each Device Lease, regardless of whether Customers make lease payments (collectively,
the
Customer Receivables
) for the Devices leased to them under the Customer Lease or whether the Customer Lease is still in effect. Pursuant to the Guaranty (Tranche 2), Sprint will guaranty (subject to a cap of 20% of the
aggregate Cash Purchase Price) the Lessees obligations to make Device Lease Rental Payments to Mobile Leasing and termination payments (
Termination Payments
) owed to Mobile Leasing in the event that the Master Lease
Agreement (Tranche 2) is terminated early. In addition, pursuant to the Performance Support Agreement (Tranche 2), Sprint will guaranty for the benefit of Mobile Leasing the performance of the covenants, agreements and undertakings of the
Originators, the Lessees and Sprint Spectrum under the transaction documents, other than the obligation to make Device Lease Rental Payments and Termination Payments.
All Devices must be returned to Mobile Leasing, subject to purchase rights of the Customers and provided that Lessees have no obligation to
return Devices not returned by the Customers to a Sprint entity.
Sprint Spectrum will act as servicer for Mobile Leasing and the Lessees
in respect of the Customer Leases and the Devices.
To secure the obligations of the Lessees under the Device Lease, the Lessees will
provide a security interest to Mobile Leasing in, among other things, the Customer Leases, Customer Receivables and accounts holding amounts paid in respect of the Customer Receivables. The Handset Sale Leaseback (Tranche 2) agreements contain
affirmative and restrictive covenants customary for transactions of this type. Mobile Leasing will be entitled to terminate one or more Device Leases upon certain customary enumerated events of default (each, an
Event of Default
),
including (i) payment default, (ii) failure to comply with covenants, (iii) breach of representations, (iv) insolvency of Sprint or other affiliates of Sprint, (v) a change of control and (vi) termination of
Sprints license to provide wireless communication services. Upon the occurrence and continuance of an Event of Default and the exercise of remedies by Mobile Leasing, the Lessees will be obligated to pay the Termination Payments.
Brightstar Corp. (
Brightstar
) will perform logistics and marketing services with respect to the Devices. Brightstar is a
subsidiary of SoftBank Group Corp., which is the controlling stockholder of Sprint and a minority owner of Mobile Leasing. In addition, Brightstar or its affiliates separately provide supply chain and inventory management services to Sprint.
The foregoing description of the Handset Sale Leaseback (Tranche 2) is qualified in its entirety by reference to the First Step Transfer
Agreement (Tranche 2), the Second Step Transfer Agreement (Tranche 2), the Master Lease Agreement (Tranche 2), the Performance Support Agreement (Tranche 2) and the Guaranty (Tranche 2), which are filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5
hereto, respectively, and incorporated herein by reference.
New Credit Agreement
On April 28, 2016, Sprint Communications, Inc. (
SCI
), a direct subsidiary of Sprint, entered into an unsecured credit
agreement (the
New Credit Agreement
) with Mizuho Bank, Ltd., as administrative agent, arranger and bookrunner. Sprint and certain subsidiaries of SCI guaranty the obligations of SCI under the New Credit Agreement. The New Credit
Agreement matures on October 28, 2017 and provides SCI with additional liquidity for general corporate purposes other than for the repayment of existing bank debt. The aggregate amount of the commitments under the New Credit Agreement, as of
April 28, 2016, is $2 billion. SCI has the option to increase the aggregate commitments by up to an additional $500 million if certain customary conditions are met.
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Loans borrowed under the New Credit Agreement will be required to be repaid, and commitments
under the New Credit Agreement will be automatically reduced, in an amount equal to (i) the net cash proceeds from the incurrence by Sprint or certain of its subsidiaries of certain specified indebtedness and other indebtedness issued in either the
public or private markets, other than certain ordinary course indebtedness, (ii) the net cash proceeds from any issuance of equity securities or equity-linked securities by Sprint or any of its subsidiaries other than certain intercompany issuances
and other customary exceptions, and (iii) a percentage of the net cash proceeds from certain asset sales made by Sprint or certain of its subsidiaries. The commitments under the New Credit Agreement will terminate, and loans borrowed thereunder are
required to be repaid, upon a change of control.
The New Credit Agreement contains representations, warranties, covenants and events of
default substantially the same as those contained in SCIs revolving credit facility.
The foregoing description of the New Credit
Agreement does not purport to be complete and is qualified in its entirety by reference to the New Credit Agreement, which is filed as Exhibit 10.6 hereto and incorporated herein by reference.