Clearwire Surges After Payment, Sprint Deal

By Sarah Frier and Scott Moritz - Dec 2, 2011 4:15 AM GMT+0700

Clearwire Corp. (CLWR), the money-losing wireless carrier, gained 14 percent after making a $237 million interest payment to creditors and striking a new network-sharing agreement with partner Sprint Nextel Corp. (S)

Clearwire, based in Bellevue, Washington, rose to $2.03 at the close in New York. It has declined 61 percent this year.

The companies said Clearwire will get as much as $1.6 billion over the next four years, helping address its cash needs as it shifts to higher-speed wireless technology. Founded by wireless pioneer Craig McCaw in 2003, Clearwire has posted widening losses for years amid competition from larger rivals.

“This is a significantly positive development for Clearwire,” said Michael Nelson, a Mizuho Securities USA Inc. analyst in New York. “One could argue whether it spared them from bankruptcy, but it certainly extended the runway.”

The companies will extend an agreement under which Sprint buys wholesale WiMax wireless capacity from Clearwire and then resells the 4G services to its own customers.

The deal comes after a standoff over how the two would work together when their current network deal ends at the end of 2012. Sprint, which is Clearwire’s largest shareholder and wholesale customer, had said it would stop selling devices that use WiMax, Clearwire’s existing technology, after next year.

‘Important Piece’

Clearwire has said needs about $1 billion to roll out a long-term evolution, or LTE, wireless network and fund operations. And while the Sprint deal is significant, Clearwire said it plans to raise additional funding, too.

“This is an important piece in the mix of capital we need,” Clearwire Chief Executive Officer Erik Prusch said in a phone interview today. “This piece was critical.”

Clearwire will get $926 million for WiMax services in 2012 and 2013 and up to $350 million in prepayments for LTE services from Sprint under the agreement, the companies said. Sprint also agreed to provide up to $347 million in equity funding if Clearwire sells new shares.

Clearwire will sell equity “sooner rather than later,” Joe Euteneuer, Sprint’s finance chief, said today at a conference in Orlando, Florida.

As part of its fundraising plans, Clearwire has also considered options like selling wireless spectrum and loans from equipment suppliers to pay for gear purchases.

“We are considering a complement of approaches,” Prusch said. He declined to comment on what option the company will take next.

‘Increased Challenges’

Prusch also said Clearwire is committed to building its LTE network on time. One of the conditions of the agreement with Sprint is that Clearwire achieves certain buildout targets and network specifications by June 2013.

“Without this deal, there would have been increased challenges for them to raise additional funding,” said Nelson, who rates Clearwire shares “buy” and Sprint “neutral.”

Without the new agreement, Clearwire would have had only $350 million to $400 million left for next year’s operations after paying creditors, according to Standard & Poor’s. S&P downgraded Clearwire’s debt to CCC last week, which means Clearwire is dependent on economic conditions if it needs to access debt markets.

Today, Moody’s Investors Service raised the outlook for Clearwire’s credit rating to “stable” from “negative.”

‘Competitive Spirit’

“Right now, Sprint needs Clearwire and Clearwire needs Sprint,” David Novosel, an analyst at Gimme Credit in Chicago, said before the agreement.

Sprint couldn’t afford to lose access to Clearwire’s spectrum, Novosel said. If Clearwire had failed to pay creditors and needed to restructure its debt, the spectrum Sprint uses might have been auctioned off to the highest bidder.

The peace between the two partners came at a cost as the companies compete against larger rivals AT&T Inc. (T) and Verizon Wireless, said Ned Zachar, a portfolio manager at KLS Diversified Asset Management in New York.

“It would have been better if they had gotten to this deal six months or nine months ago,” Zachar said. “The uncertainty and the very mixed signals obviously hurt both companies. Sprint’s competitive spirit should have been directed at AT&T or Verizon rather than at Clearwire.”

Sprint, based in Overland Park, Kansas, was unchanged at $2.70 at the close in New York and has lost 36 percent this year.

To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; Scott Moritz in New York at smoritz6@bloomberg.net

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