Clearwire Corp’s liquidity crisis has prompted an offer of $1.6 billion help over the next 4 years from Sprint Nextel Corp, the 3rd U.S. mobile provider. It sent bankruptcy-risk Clearwire shares up by 14%. Part of the deal was an extension of Sprint’s Clearwire network use and possibly an equity combination and payment of Clearwire debt interest of $237 million due December 1. The majority of Clearwire is Sprint-owned and $1 billion financing was sought by Clearwire to remain operational and go through with the network upgrade. The news made stocks rise by 13% on Wednesday and opening at 2.14 Monday morning.
Investors welcome the deal but analysts doubt the partnership’s span given the stormy past between Sprint and Clearwire and Sprint’s own plans of a network upgrade. Nomura analyst Michael McCormack said Sprint may be tossing Clearwire a “lifeline” but that’s prolonging the current debate regarding Clearwire’s strategic importance to Sprint. The deal is potentially positive said S&P’s rating agency but maintains its default-risk rating of Clearwire while waiting for changes on Clearwire’s current cash flow deficit. Moody’s on the other hand upped Clearwire’s rating from “negative” to “stable”.
Additional funding of $3 billion is sought by Sprint itself but made a $347 million equity offer commitment to Clearwire and an additional $1.28 billion as payment for wireless network usage. Clearwire adjusted its current agreement with Sprint, allowing unlimited data use which to Mizuho’s Michael Nelson was a small price to pay. He believes Clearwire will be granted the additional funding and will boost investor confidence. Clearwire CEO Erik Prusch thinks the deal is an important piece to the whole funding mix but did not explain how Clearwire intends to raise money through equity offer or vendor financing.
Wells Fargo analyst Jennifer Fritzsche said the deal addresses Sprint investors’ doubts about shares now that Sprint gained an enviable spectrum position. Doubts persist over Sprint’s long-term purpose for Clearwire. It has been developing its own swift service but admitted the need to capitalize on Clearwire’s high-demand markets service. Clearwire may be given a breather for now, but analyst Jeff Kagan asks what is next.
Analysts thought Clearwire’s plan to miss the December 1st interest payment was a negotiating scheme so Sprint would quickly take action. Investors panicked during September 7 analysts’ meeting when Sprint remarked about thoughts of deserting Clearwire. Through the deal, Clearwire gets a $926 million payment for Sprint’s unlimited wireless network usage for 2012 and 2013. Succeeding payments will be data usage-based. Clearwire will also get $350 million for Long Term Evolution, a high-speed service technology, for 2 years provided it can meet its June 2013 network targets. Up to $347 million equity funding was also pledged by Sprint if Clearwire would offer equity between $400 and $700 million to maintain Sprint’s present voting interest.
Nasdaq Clearwire shares closed at $2.03 up by 25 cents while New York Stock Exchange Sprint shares closed at $2.70, same as it did on Wednesday. Fixed income investors sent Clearwire’s debt instruments higher following the news but pressed Sprint’s debt insurance price.