Sprint - Nextel 2015 Annual Report Download - page 107

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Sale-Leaseback Tranche 2 that provided $2.2 billion and $1.1 billion , respectively in cash proceeds and a New Unsecured Financing Facility for $2.0 billion ( see
Note19.SubsequentEvents) that also provides liquidity for business operations.
Accounts Receivable Facility
Transaction Overview
Our accounts receivable facility (Receivables Facility), which provides us the opportunity to sell certain wireless service and installment receivables (as
defined in the agreements) to unaffiliated third parties (Purchasers), was amended in November 2015 to include future amounts due from customers who lease
certain devices from us. The amendment increased the maximum funding limit under the Receivables Facility to $4.3 billion and extended the expiration to
November 2017. The amount available under the Receivables Facility fluctuates over time based on the total amount of eligible receivables generated during the
normal course of our business. As of March 31, 2016 , the total availability under the facility was approximately $2.0 billion . However, as a result of sales we
have completed to date, the total amount available to be drawn as of March 31, 2016 was $94 million . The proceeds from the sale of these receivables are
comprised of a combination of cash and a deferred purchase price receivable (DPP). While it's at Sprint's election to decide how much cash it chooses to receive
from each sale, the maximum amount of proceeds varies based on a number of factors and currently represents approximately 50% of the total amount of the
receivables sold to the Purchasers. The DPP is realized by us upon either the ultimate collection of the underlying receivables sold to the Purchasers or upon
Sprint's election to receive additional advances in cash from the Purchasers subject to the total availability under the Receivables Facility.
Wireless service and installment receivables sold are treated as a sale of financial assets and Sprint derecognizes these receivables, as well as the related
allowances, and recognizes the net proceeds received in cash provided by operating activities on the consolidated statements of cash flows. The fees associated
with these sales are recognized in "Selling, general and administrative" on the consolidated statements of operations. The sale of future lease receivables are treated
as financing transactions. Accordingly, the proceeds received are reflected as cash provided by financing activities on the consolidated statements of cash flows
and the fees are recognized as "Interest expense" on the consolidated statements of operations.
Transaction Structure
Sprint contributes certain wireless service, installment and future lease receivables as well as the associated leased devices to Sprint's wholly-owned
consolidated bankruptcy-remote SPEs. At Sprint's direction, the SPEs have sold, and will continue to sell, wireless service, future lease and installment receivables
to Purchasers or to a bank agent on behalf of the Purchasers. Leased devices will remain with the SPEs, once sales are initiated, and continue to be depreciated over
their estimated useful life.
Each SPE is a separate legal entity with its own separate creditors who will be entitled, prior to and upon the liquidation of the SPE, to be satisfied out
of the SPE’s assets prior to any assets in the SPE becoming available to Sprint. Accordingly, the assets of the SPE are not available to pay creditors of Sprint or any
of its affiliates (other than any other SPE), although collections from these receivables in excess of amounts required to repay the advances, yield and fees of the
Purchasers and other creditors of the SPEs may be remitted to Sprint during and after the term of the Receivables Facility.
Sprint has no retained interest in the receivables sold, other than collection and administrative responsibilities and its right to the DPP. Sales of eligible
receivables by the SPEs generally occur daily and are settled on a monthly basis. Sprint pays a fee for the drawn and undrawn portions of the Receivables Facility.
A subsidiary of Sprint services the receivables in exchange for a monthly servicing fee, and Sprint guarantees the performance of the servicing obligations under
the Receivables Facility.
DPP
The DPP related to our wireless service and installment receivables is classified as a trading security within "Prepaid expenses and other current assets"
on the consolidated balance sheets and is recorded at its estimated fair value. The fair value of the DPP is estimated using a discounted cash flow model, which
relies principally on unobservable inputs such as the nature and credit class of the sold receivables and subscriber payment history, and, for installment receivables
sold, the estimated timing of upgrades and upgrade payment amounts for those with upgrade options. Accretable yield on the DPP is recognized as interest revenue
within net operating service revenue on the consolidated statements of operations and other changes in the fair value of the DPP are recognized in "Selling, general
and administrative" on the consolidated statements of
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