Hey Clearwire, Sprint May Just Not Be That Into You

What happens if someone pulls out all the stops to throw a legendary party, and then nobody shows up? Or, alternatively, people show up but the host goes bankrupt before the party really gets going? That may encapsulate the preeminent fear about would-be 4G giant Clearwire (Nasdaq:CLWR). The company is burning cash at a prodigious rate, Verizon (NYSE:VZ) and AT&T (NYSE:T) continue to go about their business, and Sprint (NYSE:S) seems outwardly a little more skittish about its unofficial subsidiary. 

A $1.3 Billion Debt Top-Off
About two weeks ago, Clearwire closed on a round of financing that brought the company over $1.33 billion in additional debt. Two tranches went out with coupon rates of 12% (though the '15 debt is trading at a yield-to-maturity of about 8.8%), while the third was a convertible with a coupon of 8.25%. Clearly, then, we are not talking about a AAA issuer. As part of its special relationship with the company, Sprint will have the right to participate (buy debt) up to 50%, and so the company may issue more debt (in excess of $700 million) within the next month.


Clearly the company needs the cash. Clearwire's capital expenditures have been averaging over $650 million a quarter lately, but the company had about $1.3 billion in cash and short-term securities on the balance sheet at the end of the September quarter (as well as an inconsequential amount of receivables and long-term investments). With this deal, then, Clearwire has bought more time but this is quite likely not the last time the company will need to raise capital.


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