PREVIEW: Clearwire seen reaching Sprint funding deal

Wed Nov 30, 2011 3:30pm EST

* Agreement seen by year-end, if not by Dec 1

* Clearwire "optimistic" about a deal-source

By Sinead Carew

NEW YORK, Nov 30 (Reuters) - Clearwire Corp is expected to reach a funding agreement with Sprint Nextel at least by year-end and possibly in time for Clearwire's Dec. 1 debt interest payment deadline, according to people following a standoff between the wireless service providers.

Clearwire, which is majority owned by Sprint, is seeking almost $1 billion in new financing to keep operating and to pay for a network upgrade that is crucial for it to compete in the U.S. market for high-speed wireless services.

A source familiar with the situation said on Wednesday, just a day ahead of the deadline for a roughly $237 million debt interest payment, that Clearwire was "optimistic it can reach a funding deal with Sprint, but details were still being worked out.

Clearwire's Chief Executive Erik Prusch told the Wall Street Journal earlier this month that it was considering skipping the payment due on Dec, 1, prompting its stock to fall as much as 31 percent.

But some analysts saw his comments as little more than a negotiating tactic in Clearwire's discussions with Sprint, which in addition to being its majority owner is also Clearwire's biggest customer.

The companies' tempestuous relationship came to a head on Oct. 7 when comments by Sprint, suggesting that a Clearwire bankruptcy could be "constructive", caused Clearwire investors to flee.

Since then, the companies have said that they are working on an extension of their network agreement for services beyond 2012 - when their current pact expires.

Some investors worry that Clearwire needs to at least seal the network agreement with Sprint before it can convince any potential equity or debt investors to provide financing.

At least one analyst expects Sprint to be part of the funding, as it recently raised $4 billion in debt markets but may not need all of that money immediately.

"They've reached a detente," said Macquarie analyst Kevin Smithen, of Clearwire and Sprint. "As soon as Sprint got their $4 billion in funding they were keen to get a deal done."

Smithen said Sprint and Clearwire could announce an agreement as soon as this week and, if not, he expects an agreement to be signed by year end at the latest.

Clearwire has a 30-day grace period in which to make its debt interest payment if it fails to do so on Dec. 1.

But another analyst, John Hodulik of UBS, said it would not be in Clearwire's interest to skip the Dec. 1 payment.

"We believe going into default is not a step the company wants to take, as even if the default is cured during the grace period, the act of defaulting would make it very difficult to secure vendor financing," Hodulik said.

Clearwire has said it needs up to $300 million to fund operations and another $600 million to upgrade its network.

Chief Financial Officer Hope Cochran told Reuters in September that Clearwire could gain $300 million of the funding from vendor financing, where the vendor would offer a loan for the value of the equipment as part of the sale agreement.

But Clearwire would only buy equipment if the rest of the funding is in place, according to Cochran. He said the remaining funding could include a roughly $300 million equity investment from a strategic partner, which would allow Clearwire to raise more debt.

Clearwire shares were down 3 cents to $1.55 in Wednesday afternoon Nasdaq trading. Its shares were trading at $2.05 before the Oct. 7 comments by Sprint.

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