Clearwire Plans $1.1 Billion Debt Sale After Disclosing Funding Shortfall

Clearwire Corp., the high-speed wireless network carrier 54-percent owned by Sprint Nextel Corp., said it plans to sell at least $1.1 billion of debt after saying last month it may not have enough funding to keep operating.

“In terms of Sprint, we believe this is the best resolution one could hope for,” Jennifer Fritzsche, a Wells Fargo & Co. analyst in Chicago, wrote in a note to clients. “It does not have to put up capital at this time - which had been a huge concern for investors -- but has the right to keep its ownership stake down the road.”

The funding may also provide Kirkland, Washington-based Clearwire the ability to expand service to an additional 25 million to 30 million customers in 2011, according to Fritzsche, who rates the shares “outperform.”

Clearwire may offer $175 million of first-priority senior secured notes due in 2015, $500 million of second-priority secured notes due 2017 and $500 million of exchangeable notes due 2040, the company said today in a statement distributed by Business Wire.

Clearwire is trying to raise the debt after disclosing in a Nov. 4 filing continued losses and funding uncertainty “raises substantial doubt about our ability to continue.” A default could trigger a contract provision pulling Sprint, the third- largest U.S. mobile phone carrier, into default as well.

Default Protection

Credit-default swaps on Overland Park, Kansas-based Sprint surged last month after the Clearwire disclosure, jumping 114.5 basis points to as high as 420.6 on Nov. 30. The contracts fell 40.3 basis points today to 367 at 8:57 a.m. in New York, according to broker Phoenix Partners Group.

Contracts protecting a net $2.01 billion of Sprint’s debt were outstanding as of Nov. 26, according to the Depository Trust Clearing Corp., which runs a central repository for the credit swaps market.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

“You lighten the load of funding by raising the debt,” said Chris Larsen, an equity analyst at Piper Jaffray & Co. in New York.

4G Provider

Sprint rose 16 cents, or 4.2 percent, to $3.93 in New York Stock Exchange composite trading as of 10:01 a.m., while Clearwire declined 36 cents, or 5.3 percent, to $6.46 in Nasdaq Stock Market trading.

Clearwire said last month it’s cutting 15 percent of its workforce, reducing sales and marketing spending and delaying its Clear-branded smartphone as part of a plan to save between $100 million and $200 million this year.

The company was reshaped into a 4G provider in 2008 with a $3.2 billion infusion from a group of investors, including Sprint, Google Inc., Time Warner Cable Inc., Intel Corp., Bright House Networks and Comcast Corp.

Clearwire got another $1.56 billion from investors, most of which was provided by Sprint, a year ago and sold more than $2 billion in debt. The last infusion helped Clearwire maintain plans to cover 120 million people with its service by the end of this year.

The first-lien notes will be issued as a reopening of the company’s 12 percent notes initially sold in November 2009, the statement said. Proceeds may be used for working capital and for general corporate purposes, Clearwire said. The debt will be offered through its Clearwire Communications LLC unit.

To contact the reporters on this story: Boris Korby in New York at bkorby1@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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