Sprint may use debt to fund Clearwire

Reuters

Sprint Nextel Corp (Overland Park, Kan., U.S.A.) said it could use the proceeds from a private debt offer to fund Clearwire Corp (Kirkland, Wash., U.S.A.), sending shares in the cash-strapped high-speed wireless firm up 8% on Friday.

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% voting share in Clearwire," says Scott Dinsdale, vice president for KDP Investment Advisors (Montpelier, Vt., U.S.A.), 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% 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 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 (Tokyo, Japan) analyst Michael Nelson said it would have been striking if Sprint had not included Clearwire.

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

Investor nerves have frayed after Sprint executives triggered a 32% 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.

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 (Cupertino, Calif., U.S.A.) to sell iPhone.

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

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

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