Clearwire soars as Sprint eases liquidity concerns

NEW YORK Thu Dec 1, 2011 2:46pm EST

A woman talks on her phone as she walks past T-mobile and Sprint wireless stores in New York July 30, 2009. REUTERS/Brendan McDermid

A woman talks on her phone as she walks past T-mobile and Sprint wireless stores in New York July 30, 2009.

Credit: Reuters/Brendan McDermid

NEW YORK (Reuters) - Sprint Nextel Corp, the No. 3 U.S. mobile provider, agreed to pay up to $1.6 billion to Clearwire Corp in the next four years, including a network pact and a potential equity infusion, easing concerns about a liquidity crisis at Clearwire.

Clearwire, for which some investors had bankruptcy fears, saw its shares rise 18 percent after it said on Thursday that it will be able to make a $237 million debt interest payment due December 1.

The stock had closed up 13 percent the day before after a Reuters report that Sprint was expected to reach a funding agreement for Clearwire.

Wireless service provider Clearwire, which is majority owned by its biggest customer Sprint, last month told the Wall Street Journal that it might skip the interest payment to conserve cash as it needs almost $1 billion in new financing to keep operating and fund a network upgrade.

At the time analysts said the comment was likely a negotiating tactic aimed at forcing Sprint's hand.

Sprint, which itself recently raised $4 billion from a bond sale, committed to a Clearwire equity offering of up to $347 million and said it would pay Clearwire about $1.28 billion for using its wireless network.

Clearwire's CEO Erik Prusch said the agreement "cements" the relationship with Sprint, with which Clearwire has had a tempestuous past.

"We think this is a very important piece to the whole mix of funding for this company, having our leading shareholder step up in this way," he said.

He declined to comment on Clearwire's other efforts to raise funding, such as vendor financing.

Analysts said the agreement was very good news. Clearwire had to give some concessions to Sprint by adjusting their existing network agreement to allow unlimited data use. But Mizuho's Michael Nelson said that was "a small price to pay."

In particular, he said Sprint's commitment to an additional equity investment would give other equity or debt investors more confidence in Clearwire.

"We believe the deal with Sprint increases the probability that Clearwire will secure additional funding," said Nelson.

Another analyst, Jennifer Fritzsche of Wells Fargo, said the agreement was also good news for Sprint investors because it helped answer questions about where the operator would get spectrum to support a high-speed wireless service it wants to build.

"It removes a significant overhang for the shares, Fritzsche said in a research note, adding that Sprint now has "an enviable spectrum position."

Sprint said it would pay $926 million for unlimited use of Clearwire's current wireless network in 2012 and in 2013, after which its payments would depend on how much customers used the service.

In return Clearwire committed to keep that network -- based on WiMax technology -- up and running at least until 2015.

Sprint would also pay Clearwire up to $350 million in a series of prepayments, over two years at most, for capacity on a high-speed service Clearwire hopes to build using a faster technology known as Long Term Evolution, as long as Clearwire achieves certain network targets by June 2013.

Sprint, which has minority voting rights in Clearwire, also committed to providing more equity funding "in the event of an equity offering."

If Clearwire raised between $400 million and $700 million in new equity, Sprint said it would participate in the offering on a pro rata basis up to $347 million, consistent with its current voting interest.

The news was a relief for some investors who had fled Clearwire on October 7 due to comments by Sprint that led to fears that Sprint could abandon Clearwire.

Clearwire shares were up 41 cents, or about 23 percent at $2.19 on Nasdaq after the news. Sprint shares were up 9 cents or over 3 percent at $2.79 on the New York Stock Exchange.

Fixed income investors also reacted well to the news, sending Clearwire's more, typically illiquid, debt instruments up and pushing down the price of Sprint's credit default swaps, or the cost of insuring Sprint's debt.

(Reporting by Sinead Carew, Nicola Leske and Melissa Mott; editing by Derek Caney, Gerald E. McCormick and Andre Grenon)

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