Leap Wireless Out to Raise over $1.3B to Expand, Retire Debt

5/28/09Follow @bvbigelow

Plans by former Qualcomm spinout Leap Wireless (NASDAQ: LEAP) to raise more than $1.3 billion in debt and loans set off market speculation about potential mergers, although the company says it just plans to retire a credit line and maybe expand its wireless network.

Leap disclosed its capital-raising plans late yesterday in a pair of announcements, triggering an after-hours decline in the price of its shares. In its first statement, the pay-as-you-go mobile phone company said it intends to sell 6.1 million shares of its common stock, which would raise almost $240 million at Leap’s current share price. Leap, which has just over 70 million shares outstanding, says it plans to use the capital for general corporate purposes, including network expansion and acquisitions.

In a subsequent release, Leap says its Cricket Communications subsidiary plans to arrange $1.1 billion in loans. Leap says the net proceeds from its debt offering will be used to retire existing debt, and any remaining proceeds will be used to expand and improve Cricket’s wireless network, acquire additional wireless spectrum, purchase other companies, and for the long-term deployment of next-generation technology.

Cricket offers flat-rate, prepaid phone service in 35 of the top 50 markets, including Chicago, Milwaukee, Minneapolis, Philadelphia, Washington D.C, and Seattle. The announcement renewed market speculation of a possible combination of Leap, which has about 4.3 million customers, with Dallas, TX-based Metro PCS, which has about 6 million subscribers in complementary markets.

But the reaction was not altogether positive on Wall Street, perhaps because Leap has more than $2.5 billion in existing long-term debt on its balance sheet, according to the company’s financial results for the first quarter that ended March 31st.

In after-hours trading, the price of Leap shares declined by $2.31 a share, or almost 6 percent, to $38.74 a share.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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