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Clearwire’s Bond Offering a ‘Home Run’ for Sprint, Swaps Show

Dec. 2 (Bloomberg) -- Credit-default swaps on Sprint Nextel Corp. dropped to the lowest in three weeks after majority-owned Clearwire Corp., the high-speed wireless network carrier, said it will sell at least $1.1 billion of debt.

“If they can raise all this debt, the first $1.1 billion of it, that’s a home run for Sprint because Clearwire’s still up and running,” Dave Novosel, senior analyst at Gimme Credit, an independent research service on corporate bonds, said in a telephone interview. “They can close that funding gap, which is huge, which helps fund the expansion of their network, and therefore Sprint has a much more viable partner.”

Sprint’s credit-default swaps dropped 40.5 basis points to 366.8 basis points, according to data provider CMA. The contracts on Overland Park, Kansas-based Sprint surged last month after Clearwire disclosed on Nov. 4 that it may not have enough funding to keep operating. The cost of protecting Sprint’s debt jumped 114.5 basis points to as high as 420.6 on Nov. 30, CMA data show.

The swaps surged as traders speculated that a Clearwire default could trigger a contract provision pulling Sprint, the third-largest U.S. mobile phone carrier, into default as well.

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.

Long-Term Needs

Clearwire shares dropped 92 cents, or almost 14 percent, to $5.90 on the Nasdaq Stock Market, while Sprint rose 9 cents, or 2.4 percent, to $3.86 in New York Stock Exchange composite trading as of 5:22 p.m.

While the bond offering will help address near-term funding, the company still needs to find additional capital, according to Ping Zhao, a telecommunications analyst at New York-based debt-research firm CreditSights Inc.

“It solves their immediate liquidity issue, but it doesn’t solve the issue of the long-term funding to finish the network build-out,” Zhao said in a telephone interview. “Sprint still has to contribute. I don’t think Sprint has any way around it.”

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.

‘Acute’ Tension

The benchmark U.S. credit-default swaps index fell for a second day, reaching an eight-day low, as the European Central Bank said it will delay the withdrawal of emergency liquidity measures and keep buying government bonds as the debt crisis creates “acute” tensions in financial markets.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 3.4 basis points to a mid-price of 92.3 basis points as of 5:01 p.m. in New York, according to index administrator Markit Group Ltd.

The measure, which typically falls as investor confidence improves and rises as it deteriorates, ended Nov. 22 at 91 basis points.

“Overall the current monetary policy stance remains accommodative,” ECB President Jean-Claude Trichet said as the banking body met in Frankfurt today under pressure from investors to stop the region’s debt crisis from engulfing Spain.

ECB policy makers kept the benchmark interest rate at a record low of 1 percent.

To contact the reporter on this story: 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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