Bloomberg News

Clearwire’s Debt Threat May Be ‘Ploy’ to Win Sprint Agreement

November 23, 2011

Nov. 19 (Bloomberg) -- Clearwire Corp.’s warning that it could skip a debt payment coming due on Dec. 1 may be a “ploy” to win financial support from partner Sprint Nextel Corp. or another company.

Erik Prusch, Clearwire’s chief executive officer, said in an interview with the Wall Street Journal that it is evaluating whether to make the $237 million payment. He said the “very expensive payment” would be a “significant drain” on cash. Clearwire tumbled 21 percent to $1.47 yesterday.

The statement may be aimed at pressuring Sprint into extending a network-sharing agreement with Clearwire or at drawing out other potential partners, said John Fruit, manager of the Nuveen High Income Bond Fund. He called the comments “a near-term ploy” to get financial support.

“There’s been some speculation out there they could throw this out as a tactical method for stirring something up with Sprint or a third party,” Fruit, who is based in Minneapolis and owns Clearwire bonds, said in a telephone interview. “The underlying fundamentals haven’t really changed at all.”

Clearwire and Sprint depend on each other, and a default or bankruptcy could disrupt the partnership. Clearwire, the money- losing provider of wireless broadband, gets most of its revenue from Sprint, which buys wireless capacity wholesale and then resells the service to its own customers. Clearwire has said it has enough financing for 12 months, and one challenge in raising more is that Sprint hasn’t committed to extending their existing wholesale deal beyond 2012.

Deal Likely?

Sprint is the largest shareholder in Clearwire, with a 54 percent economic interest, so it stands to lose as the carrier’s stock declines. Sprint also depends on Clearwire to provide wireless service to its customers and could lose access to Clearwire’s spectrum in a restructuring, when creditors gain influence.

Clearwire said it needs about $1 billion for its operations and to upgrade its network from the WiMax wireless technology to long-term evolution, or LTE, technology. Clearwire had $698 million of cash and short-term investments as of Sept. 30, and more than $4 billion in debt.

“Clearwire’s best interest is to make the payment and I think they will,” said Walt Piecyk, an analyst with BTIG LLC in New York.

‘Speculation’

Susan Johnston, a Clearwire spokeswoman, declined to comment on the interest payment or on her CEO’s comments in the Wall Street Journal.

“Clearwire does not comment on speculation,” she said in a statement. “The company remains focused on growing its wholesale and retail business, and raising additional funds.”

Clearwire’s $2.03 billion of 12 percent first-lien notes due in December 2015 fell 1.5 cent to a mid-price of 78 cents on the dollar yesterday in New York, according to Brownstone Investment Group LLC. Its $500 million of 12 percent second-lien debt maturing in December 2017 fell 3 cents to a mid-price of 46.5 cents.

“I don’t know that a whole lot has changed from this morning, other than more posturing from the company,” said Fruit. “For the most part, the holders still think there’s asset value there.”

Sprint said last month it will stop selling WiMax devices after 2012 and that it may use Clearwire’s network to handle traffic from customers using LTE beginning in 2013, though the talks haven’t yet concluded. Their current network-sharing agreement expires at the end of next year.

Sprint Wholesale Deal

“We believe that Sprint and Clearwire are in the final stages of working out an extension of the current wholesale agreement as well as a long-term network hosting deal,” Kevin Smithen, an analyst with Macquarie Securities USA Inc. in New York wrote in a note yesterday.

Smithen also expects Sprint to inject as much as $600 million into Clearwire this year as a loan or prepayment for service. He said part of the agreement will likely allow Clearwire to sell off some of its wireless spectrum.

Sprint and Clearwire are near a deal to extend their wholesale agreement for three to five years, three people familiar with the matter said last month. A new agreement with Sprint would put Clearwire on more stable financial ground.

The two companies have been talking “constantly” over the past few weeks to reach a deal, said Piecyk, citing conversations with executives at both companies.

Scott Sloat, a spokesman for Sprint, declined to comment.

Clearwire may have options beyond Sprint. Clearwire has said it may sell some of its spectrum as a way to raise additional capital. MetroPCS Communications Inc. said last month that it may be interested in buying from Clearwire.

--Editors: Ville Heiskanen, Peter Elstrom, Niamh Ring

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Tim Catts in New York at tcatts1@bloomberg.net.

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net


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