Sprint offers Clearwire $1.6 billion "lifeline"

Sprint offers Clearwire $1.6 billion "lifeline"

Stock Market Predictions

NEW YORK (Global Markets) - 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, easing concerns about a liquidity crisis at Clearwire.

Shares in Clearwire, which investors had seen as a bankruptcy risk, rose 14 percent after the news. The deal includes a potential equity infusion and extends Sprint's use of Clearwire's network.

Clearwire also said it was able to pay $237 million debt interest due December 1.

Clearwire, which is majority owned by Sprint, had been seeking almost $1 billion in financing to keep operating and to fund an important network upgrade. Its stock rose 13 percent on Wednesday after a Global Markets report that Clearwire was expected to reach a funding deal with Sprint.

While the deal with Sprint, Clearwire's biggest shareholder and customer, was applauded by investors, some analysts still questioned the long-term future of the partnership as Sprint and Clearwire have a tempestuous past and Sprint is also planning on upgrading its own network.

Sprint is attempting to throw a "lifeline" to Clearwire, according to Nomura analyst Michael McCormack but, he said, it "merely prolongs the current debate regarding Clearwire's strategic importance to Sprint."

Standard & Poor's rating agency described the deal as "potentially positive" but it did not change its ratings of Clearwire, which still implies a default risk. It is waiting for the timing of the funding "in light of Clearwire's current substantial cash flow deficits." before any changes, S&P said.

However, Moody's rating agency changed its rating outlook on Clearwire to "stable" from "negative" after the news.

LONG-TERM QUESTIONS REMAIN

Sprint, which is seeking up to $3 billion additional funding itself, 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 made a concession to Sprint by adjusting their existing 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 equity investment commitment gives other prospective investors more confidence.

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

Clearwire's Chief Executive Erik Prusch said the deal "cements" the relationship with Sprint.

"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, however, to comment on Clearwire's other efforts to raise more money in an equity offer or vendor financing.

The deal also helped answer questions for Sprint investors on Sprint's spectrum requirements for its high-speed wireless service plans, Wells Fargo analyst Jennifer Fritzsche said.

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

But others were more cautious about Sprint's long-term intentions for Clearwire. Sprint is building its own national high-speed service but has said it will need to piggy-back on Clearwire's service in high-demand markets.

"Sprint gives them the breathing room they need to continue to survive, for now," said independent analyst Jeff Kagan. "The next big question is, what is next?"

DIFFICULT RELATIONSHIP

Clearwire had said last month that it was considering skipping the Dec 1 interest payment, a comment analysts saw as a negotiating tactic aimed at forcing Sprint's hand.

Many investors fled Clearwire on October 7 when Sprint's comments at an analysts meeting led to fears that it was considering abandoning Clearwire.

Under the new agreement, Sprint will pay $926 million for unlimited use of Clearwire's WiMax wireless network in 2012 and in 2013, after which payments will depend on data usage.

It will also pay Clearwire up to $350 million over two years for capacity on a high-speed service Clearwire wants to build using a faster technology known as Long Term Evolution, if Clearwire achieves certain network targets by June 2013.

Sprint also committed to providing equity funding of up to $347 million if Clearwire makes an equity offering between $400 million and $700 million to keep Sprint's current voting interest at the same level.

Clearwire shares closed up 25 cents at $2.03 on Nasdaq after the news, still two pennies below their close before the October 7 event. Sprint shares closed at $2.70 on the New York Stock Exchange, unchanged from Wednesday.

Fixed income investors also reacted positively to the news, sending Clearwire's 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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Sprint seeks to raise capital; investors flee

Sprint seeks to raise capital; investors flee

Stock Market Predictions

NEW YORK (Global Markets) - Sprint Nextel Corp said it needs to raise more money and signaled it will burn through its cash reserves, raising concerns about the wireless provider's financial stability and business strategy.

Shares fell 20 percent to close at $2.41 on Friday, while its credit default swaps rose, reflecting greater concerns about a default risk. Shares of Sprint affiliate Clearwire Corp tumbled 32 percent to $1.39.

The news that Sprint could spend more cash than it brings in to upgrade its network provoked angry questions at an investor meeting with Chief Executive Dan Hesse.

Analysts complained that Hesse gave few clear answers and instead raised many fresh questions. In particular, they were worried that Sprint said its cash shortfall did not yet factor in the undisclosed sum of money the carrier has to pay Apple Inc for the right to sell the popular iPhone.

"They're going to be spending more money than they're bringing in for the next couple of years... even before iPhone costs," Hudson Square analyst Todd Rethemeier said, adding that this makes Sprint -- already a risky investment prospect -- an even more dangerous bet.

The Wall Street Journal previously reported that Sprint agreed to pay Apple $20 billion over four years as part of their agreement.

Hesse conceded that selling the iPhone would be expensive, but promised it would be "quite accretive" to Sprint's profits over time.

"The part we struggle with here is the fact that Sprint wants us to think about the subscriber benefit from the iPhone, but ignore the financial impact," Jennifer Fritzsche from Wells Fargo wrote in a research note.

LIQUIDITY QUESTIONS

Sprint outlined a plan to spend $7 billion on a network upgrade that it wants to complete by the end of 2013, two years earlier than previously suggested. The company said that upgrade would save it $10 billion to $11 billion.

Chief Financial Officer Joe Euteneur said Sprint would pay for the upgrade with cash from its balance sheet and by raising capital. He said he could not provide details as he wanted the flexibility of being able to tap the market at the best time.

The company also flashed a presentation slide saying it expects its liquidity to improve after 2013, implying a tough two years before that.

Analysts, many of whom have covered Sprint for years, told management that they did not understand the presentation and several asked about liquidity.

"Seeing all these balls in the air is a little scary," said Evercore analyst Jonathan Schildkraut.

Analysts said there was no immediate risk of Sprint defaulting on its debt. But, in a sign of investor nervousness, Sprint credit default swaps rose.

It now costs $1.5 million paid upfront to insure $10 million of Sprint debt for five years, in addition to annual payments of $500,000, according to data provider CMA. That is up from an upfront cost of $1.04 million plus $500,000 a year on Thursday.

CLEARWIRE UNCERTAINTY

Sprint owns 54 percent of Clearwire, and was questioned about how long it plans to support the venture.

Executives for Sprint said it would stop selling phones using Clearwire's high-speed WiMax network by the end of 2012, and refused to speak about plans beyond that.

Sprint also said it hopes to bolster its own network using spectrum from Clearwire's rival, LightSquared, backed by hedge fund manager Phil Falcone, if that becomes available.

Sprint declined to comment on whether it would offer Clearwire more funding. When asked if Sprint would let Clearwire go bankrupt, Hesse's response was that if there was a bankruptcy, he would "expect it to be constructive."

Clearwire Chief Executive Eric Prusch told Global Markets that he was optimistic that the company would be able to raise the $1 billion financing it needs to continue to operate and upgrade its network. He added that Sprint was still dependent on Clearwire's network.

At the Sprint meeting, Joan Lappin of Gramercy Capital Management angrily asked why it was spending to upgrade its own network while Clearwire, which has much more spectrum than Sprint, needs funding.

The question was greeted by loud clapping and cheering among analysts and investors.

Sprint said its network upgrade would help boost its margin from operating income before depreciation and amortization by 4 percent to 6 percent by 2014. It also said it would raise its margins by another 4 percent to 6 percent by improving its operations.

But analysts questioned whether investors would see any boost in profit because of the spending plans.

Bernstein Research analyst Craig Moffett also worried that Sprint's service could suffer while it sets aside spectrum for the network upgrade. It is not clear how the company would avoid "creating a capacity gap" when there will be big demands on the network, he said, particularly iPhone users.

Sprint plans to upgrade its network using Long Term Evolution, the same technology used by bigger rivals, AT&T Inc and Verizon Wireless, a venture of Verizon Communications Inc and Vodafone Group Plc.

(Additional reporting by Liana B. Baker. Editing by Gerald E. McCormick and Robert MacMillan)

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Sprint says may use debt to fund Clearwire

Sprint says may use debt to fund Clearwire

Stock Market Predictions

(Global Markets) - Sprint Nextel Corp said it could use the proceeds from a private debt offer to fund Clearwire Corp, sending shares in the cash-strapped high-speed wireless firm up 8 percent on Friday.

But one research firm warned that hopes for Sprint's participation in a long-awaited financing deal for Clearwire may have been too high.

Sprint sold $4 billion in bonds on Friday, according to underwriters. The company had included Clearwire funding among possible uses for the debt proceeds when it announced the offering on Friday morning.

But Sprint executives later told debt investors that Clearwire's inclusion on that list did not indicate any increased willingness to fund the debt-strapped wireless network operator, according to one investor.

"Specifically, they said they were not going to invest any more that would put them above a 50 percent voting share in Clearwire," said Scott Dinsdale, a vice president for KDP Investment Advisors, a research and asset management firm.

Dinsdale said he participated in an investor call held by lead manager JPMorgan to discuss the debt offering.

Sprint has a majority stake in Clearwire but holds less than 50 percent of voting rights in the company, as a way to insulate itself in the case of a Clearwire default.

Sprint, whose credit rating was downgraded on Friday, declined to comment beyond a brief statement in which it said other potential uses for the proceeds could be repaying existing debt and upgrading its network.

SPRINT RAISES $4 BLN

Shares in Clearwire closed up 8 percent on Friday, after rising as high as 28 percent. Sprint had previously refused to say if it would help Clearwire's current efforts to raise almost $1 billion in financing.

But KDP's Dinsdale said Sprint told the conference call it only included Clearwire on the list for legal reasons.

Mizuho analyst Michael Nelson said it would have been striking if Sprint had not included Clearwire.

"It provides a glimmer of hope," said Nelson.

Investor nerves have frayed after Sprint executives triggered a 32 percent drop in Clearwire's shares on October 7, when they suggested at an investor conference that a Clearwire bankruptcy could be "constructive."

Sprint, Clearwire's biggest customer, also said at the event that it would only sell phones for Clearwire's current service through the end of 2012.

Sprint has since softened its tone. It said on October 26 that it was negotiating an expansion of its network deal with Clearwire, but refused then to discuss funding prospects.

Clearwire is seeking up to $300 million to fund operations and about $600 million for a network upgrade that it urgently needs to help it compete with rivals and win wholesale customers other than Sprint.

It said earlier this week that the companies were in talks but that they had "gaps" due to differing strategic goals.

Even after Friday's move, Clearwire's low share price indicated investor concern that it could still end up filing for bankruptcy, Mizuho's Nelson said. Standard & Poor's CCC+ rating of Clearwire also indicates a bankruptcy risk.

SPRINT DOWNGRADE

A Clearwire spokesman declined to comment. Clearwire said earlier this week that it has enough money to fund its operations for the next 12 months.

Sprint itself needs to raise financing to upgrade its network and pay for the high cost of its agreement with Apple Inc to sell iPhone.

S&P downgraded Sprint's corporate credit rating one notch to B+ from BB- on Friday but said it is no longer under review for another downgrade. Ratings downgrades tend to increase the cost of raising capital.

Sprint said on October 26 that it could need up to $7 billion in new financing.

On Friday it priced $4 billion in two tranches, including $3 billion in junior guaranteed notes due in 2018 with a 9 percent yield. The second tranche was $1 billion of non-guaranteed notes due in 2021 with an 11.5 percent yield, according to underwriters of the debt.

One source familiar with the matter had said earlier in the day that Sprint was looking to issue $2 billion to $2.5 billion in junior guaranteed 2018 notes at a yield of 9 percent and $500 million of 2021 unguaranteed debt for about 11.5 percent.

Clearwire closed up 14 cents, or 8 percent, at $1.89 after touching $2.25 earlier in the session on Nasdaq. Sprint closed up 6 cents or 2 percent at $2.87 on New York Stock Exchange.

(Additional reporting by Stephen Carter in New York; editing by Gerald E. McCormick, Derek Caney, Bernard Orr and Richard Chang)

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