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Sprint cash maybe not enough for Clearwire

Clearwire Corp.’s announcement of a $1.6 billion, four-year network-sharing agreement with partner Sprint Nextel Corp. may leave the company short of cash it needs to finance expansion and modernization.

The unprofitable wireless carrier’s $920 million of first- lien bonds due December 2015 rose 12.5 cents last week to 88.5 cents on the dollar to yield 16 percent. That’s 23.4 cents below the 2011 high. The companies said Sprint would pay the Bellevue, Washington-based carrier over the next four years, helping fund a shift to higher-speed wireless technology.

Clearwire still has to contend with $1.2 billion of annual fixed costs as well as the maturity of $2.95 billion of debt in 2015. When the agreement with Sprint-Nextel expires, the partners will have to start new negotiations. Talks this year caused the carrier’s first-lien 2015 bonds to lose as much as 33 percent of their value.

Clearwire’s funding “alleviates the immediate cash crunch, but what it needs to do is start generating some positive” cash flow, Dave Novosel, an analyst at independent debt research firm Gimme Credit in Chicago, said in a telephone interview. “They’ve talked about reaching that level some time in 2012, but it remains to be seen if they can get to that point.”

String of Losses

The carrier’s adjusted loss before interest, taxes, depreciation and amortization in the third quarter was $46.4 million, it said in a Nov. 2 statement. The company’s net loss narrowed to $84.8 million from $139.4 million a year earlier. Clearwire, which has posted net losses for 11 straight quarters, gained 1.89 million customers for the three months ended Sept. 30, according to its statement.

“We’ll provide an update on 2012 guidance as part of our Q4 earnings report,” Susan Johnston, a spokeswoman at Clearwire, wrote in an e-mail. “We’re very pleased with our new agreements with Sprint.”

Clearwire has $1.2 billion in fixed costs in 2012, including $476 million in interest payments on its long-term debt obligations and $393 million in operating lease obligations, according to a Nov. 3 regulatory filing. Those costs increase to $4 billion in 2015.

The company had $4 billion of long-term debt outstanding as of Sept. 30, according to the filing. Its next bond maturity is Dec. 1, 2015, when $2.95 billion of 12 percent senior secured notes expire.

2015 Maturities

The carrier had $698 million in cash and short-term investments as of Sept. 30, according to the regulatory filing. That was before making a $237 million interest payment.

“We remain extremely concerned about this dysfunctional relationship and their ability to work together with any future setbacks,” Scott Dinsdale, a bond analyst at Montpelier, Vermont-based KDP Investment Advisors Inc., said in a Dec. 1 report. “We believe that this agreement may extend the potential survivability of the company, but we still have significant concerns surrounding its long term viability.”

Clearwire will get $926 million for WiMax wireless services in 2012 and 2013 and up to $350 million in prepayments for long- term evolution, or LTE, technology from Sprint under the agreement, the companies said Dec. 1. Sprint also agreed to provide up to $347 million in equity funding if Clearwire sells new shares.

Clearwire has said it needs about $1 billion for operations and to upgrade its network from the WiMax wireless standard to the faster LTE. Sprint is the largest shareholder in Clearwire, with a 54 percent economic interest.

Raising Funds

“What this agreement does is it opens up the door for Clearwire to raise some additional equity capital,” Dennis Saputo, a New York-based analyst at Moody’s Investors Service, said in a telephone interview. “Clearwire’s situation is by no stretch of the imagination resolved.”

Moody’s gives the company a Caa2 corporate family rating. Standard & Poor’s, which rates it an equivalent CCC, said in a Dec. 1 statement it will evaluate the timing of funding received from Sprint to determine Clearwire’s near-term liquidity. S&P’s CCC designation means the bonds are “currently vulnerable to nonpayment.”

Clearwire’s shares have gained 20.2 percent since Nov. 30, the day before the Sprint agreement was announced, ending last week at $2.14. The stock closed as high as $33.30 in 2007 after an initial public offering at $25 in March of that year.

Several cable companies that are also some of Clearwire’s largest shareholders struck an alliance with Verizon Wireless, the largest U.S. mobile-phone carrier, which could present a new challenge for Sprint and Clearwire.

‘First Step’

Comcast Corp., the largest U.S. cable provider and owner of 9.7 percent of Clearwire’s shares according to its third-quarter filing with the Securities and Exchange Commission, will receive $2.3 billion from Verizon for wireless spectrum, according to a Dec. 2 statement from the companies. Time Warner Cable Inc., which holds 5.1 percent of the carrier’s shares, gets $1.1 billion and Bright House Networks LLC, a 0.9 percent owner, gets $189 million.

The Verizon deal will change the dynamics of Clearwire’s relationship with the cable companies, said Moody’s Saputo, adding that the agreement with Sprint was a positive.

“This is a first step but we remain somewhat cautious about whether or not this will evolve into 100 percent full cooperation between the two parties,” Saputo said. “I’m not sure that all the wounds have healed.”

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