Sprint, a mobile broadband provider, has been plodding through eight years of losses. It has been toiling under the weight of $34 billion of debt. To give itself relief, Softbank, the entity with majority control of the carrier, has come up with a plan that involves creating another subsidiary of Softbank and have that subsidiary lend Sprint the money to bail itself out. According to Bloomberg Businessweek:
“According to Sprint Chief Financial Officer Tarek Robbiati, the proposal is to create another subsidiary of Son’s Japanese corporation that will lend Sprint money. The new unit plans to accept the carrier’s wireless equipment and some of its rights to slices of the wireless spectrum as collateral. Sprint says that while it won’t give up control of those precious airwaves—worth more than $115 billion, according to Bloomberg Intelligence—it’s aiming for $3 billion to $5 billion this year from these loans.”
The way Bloomberg Businessweek reports the initiative the first impression one gets is that the actual spectrum licenses can be mortgaged. What can happen is that a security interest in the proceeds of a sale of a spectrum license can be formed. The United States Court of Appeals-Ninth Circuit in MLQ Investors v. Pacific Quadracasting, Inc., held that:
In other words, the FCC may prohibit security interests in licenses themselves because the creation of such an interest could result in foreclosure and transfer of the license without FCC approval. Such approval is necessary to regulate the airwaves in the public interest. No such public interest is implicated, however, by a security interest in the proceeds of licenses, which does not grant the creditor any power or control over the license or the segment of the broadcast spectrum it represents.
Sprint investors should be aware of this distinction.