Accounts Receivable Facility

3 Months Ended

Jun. 30, 2015


Note 3.	Accounts Receivable Facility

Transaction Overview

On May 16, 2014, certain wholly-owned subsidiaries of Sprint entered into a two-year committed facility (Receivables Facility) to sell certain accounts receivable (the Receivables) on a revolving basis, subject to a maximum funding limit. The Receivables Facility was amended in April 2015, which extended the expiration date to March 31, 2017 and increased the maximum funding limit to $3.3 billion, of which $1.4 billion was available as of June 30, 2015. The available funding varies based on the amount of eligible receivables (as defined in the Receivables Facility). In connection with the Receivables Facility, Sprint formed wholly-owned subsidiaries that are bankruptcy-remote special purpose entities (SPEs). Pursuant to the Receivables Facility, certain Sprint subsidiaries (Originators) transfer Receivables to the SPEs. Receivables contributed by the Originators to the SPEs and available to be sold to the unaffiliated multi-seller asset-backed commercial paper conduits (Conduits) and other financial institutions (together with the Conduits, "Investors") primarily consisted of installment receivables and wireless service charges due from subscribers. The SPEs then may sell the Receivables to a bank agent on behalf of the Investors or their sponsoring banks. Sales of eligible Receivables by the SPEs, once initiated, 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 servicer's and the Originator's obligations under the Receivables Facility. The fees associated with the Receivables Facility are recognized in selling, general and administrative expenses on the consolidated statements of comprehensive (loss) income.

Receivables sold to the Investors are treated as a sale of financial assets. Upon sale, Sprint derecognizes the Receivables, as well as the related allowances, and recognizes the net proceeds received in cash provided by operating activities. The difference between the Receivables sold and the cash received, which represents a financial asset due to Sprint from the Investors, is referred by us as the deferred purchase price (DPP). The DPP is realizable by Sprint contingent upon the cash collections on all of the Receivables sold to the Investors. The DPP is classified as a trading security within "Prepaid expenses and other current assets" on the consolidated balance sheet 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 of the sold Receivables and subscriber payment history. Changes in the fair value of the DPP are recognized in operating income on the consolidated statements of comprehensive (loss) income.

On March 31, 2015, of the $3.5 billion of Receivables contributed by the Originators to the SPEs, the SPEs sold approximately $1.8 billion of service Receivables to the Investors in exchange for $500 million in cash (reflected within the change in accounts and notes receivable on the consolidated statement of cash flows) and a DPP of $1.3 billion, with an estimated fair value of $1.2 billion. In accordance with its rights under the Receivable Facility and to facilitate the execution of the April 2015 amendment discussed above, in April 2015 Sprint elected to temporarily suspend sales of receivables by the SPEs to the Investors and remitted payments received to the Investors to reduce the funded amount to zero. As of June 30, 2015, the amount of the Receivables held by the SPEs and the estimated fair value of the DPP due from Investors was $3.4 billion and $14 million, respectively.

Each SPE’s sole business consists of the purchase or acceptance through capital contributions of the Receivables from the Originators and the subsequent retransfer of, or granting of a security interest in, such Receivables to the bank agent under the Receivables Facility. In addition, 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 or value in the SPE becoming available to the Originators or 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 pay the investment, yield and fees of the Investors and other creditors of the SPEs may be remitted to the Originators and Sprint during and after the term of the Receivables Facility.

Continuing Involvement

Sprint has continuing involvement in the Receivables sold by the SPEs to the Investors because a subsidiary of Sprint services the receivables. Additionally, in accordance with the Receivables Facility, Sprint is required to repurchase aged receivables, or those that will be written off in accordance with Sprint's credit and collection policies, both of which result from subscriber non-payment. Sprint recognizes assets and liabilities, as applicable, with respect to its continuing involvement at fair value. Sprint's continuing involvement did not have a material impact on its financial statements as of June 30, 2015.

Variable Interest Entity

Sprint determined the Conduits are considered variable interest entities because they lack sufficient equity to finance their activities. Sprint's interest in the Receivables purchased by the Conduits, which is comprised of the net receivable due to Sprint, is not considered variable interest because it is in assets that represent less than 50% of the total activity of the Conduits.

Installment Receivables

Certain subscribers have the option to purchase their devices in installments up to a 24-month period. Short-term installment receivables are recorded in "Accounts and notes receivable, net" and long-term installment receivables are recorded in "Other assets" in the consolidated balance sheets.

The following table summarizes the installment receivables:



	June 30, 2015			March 31, 2015
	(in millions)
Installment receivables, gross	$	1,566		$	1,725
Deferred interest	(115		)	(139		)
Installment receivables, net of deferred interest	1,451			1,586
Allowance for credit losses	(217		)	(190		)
Installment receivables, net	$	1,234		$	1,396

Classified on the consolidated balance sheets as:
Accounts and notes receivable, net	$	976		$	1,035
Other assets	258			361
Installment receivables, net	$	1,234		$	1,396

The balance and aging of installment receivables on a gross basis by credit category were as follows:



	June 30, 2015						March 31, 2015
	Prime		Subprime		Total		Prime		Subprime		Total
	(in millions)
Unbilled	$	1,125	$	330	$	1,455	$	1,243	$	359	$	1,602
Billed - current	53		19		72		65		22		87
Billed - past due	23		16		39		21		15		36
Installment receivables, gross	$	1,201	$	365	$	1,566	$	1,329	$	396	$	1,725

Activity in the deferred interest and allowance for credit losses for the installment receivables is as follows:



	Three Months Ended June 30,			Twelve Months Ended March 31,
	2015			2015
	(in millions)
Deferred interest and allowance for credit losses, beginning of period	$	329		$	124
Bad debt expense	81			398
Write-offs, net of recoveries	(54		)	(255		)
Change in deferred interest on short-term and long-term installment receivables	(24		)	62
Deferred interest and allowance for credit losses, end of period	$	332		$	329