Tags: Clearwire | Sprint | Deal

Clearwire Surges After Making Payment, Striking New Sprint Deal

Thursday, 01 Dec 2011 10:50 AM

Clearwire Corp., the money-losing wireless carrier, surged after making a $237 million interest payment to creditors and striking a new network-sharing agreement with partner Sprint Nextel Corp.

Clearwire, based in Bellevue, Washington, rose as much as 37 percent and was up 22 percent to $2.17 at 10:06 a.m. New York time. The stock had lost 65 percent this year before today.

Clearwire and Sprint will extend a deal under which Sprint buys wholesale wireless capacity from Clearwire and then resells services to its own customers, the companies said in a statement today. 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.

“This is a significantly positive development for Clearwire,” said Michael Nelson, an analyst with Mizhuo Securities USA Inc. “Without this deal, there would have been increased challenges for them to raise additional funding.”

The deal comes after a standoff over how the two companies would work together when their current network-sharing 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.

Clearwire has said it plans to move to higher-speed Long- Term Evolution, or LTE, wireless technology. Still, the company said it needs about $1 billion to roll out the updated wireless network and fund operations.

“Today’s announcement further cements the mutually beneficial relationship between our two companies,” Clearwire Chief Executive Officer Erik Prusch said in the statement.

Cash Payments

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

Without the new Sprint deal, 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.

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

Sprint, based in Overland Park, Kansas, fell 1.3 percent to $2.67 and had dropped 36 percent this year before today.

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