Sprint Nextel Corp (Overland Park, Kan., U.S.A.), the third largest U.S. mobile provider, agreed to pay up to $1.6 billion to Clearwire Corp (Kirkland, Wash., U.S.A.) in the next four years, including a network pact and a potential equity infusion, easing concerns about a liquidity crisis at Clearwire.
Clearwire, for which some investors had bankruptcy fears, saw its shares rise more than 20% in morning trade after it said on Thursday that it will be able to make a $237 million debt interest payment due December 1.
Wireless service provider Clearwire, which is majority owned by its biggest customer Sprint, last month told the Wall Street Journal that it might skip the interest payment to conserve cash as it needs almost $1 billion in new financing to keep operating and fund a network upgrade.
At the time analysts said the comment was likely a negotiating tactic aimed at forcing Sprint's hand.
Sprint, which itself recently raised $4 billion from a bond sale, said it would pay Clearwire $926 million for unlimited use of its current wireless network in 2012 and in 2013, after which its payments would depend on how much customers used the service. In return Clearwire committed to keep that network -- based on WiMax technology -- up and running at least until 2015.
Sprint would also pay Clearwire up to $350 million in a series of prepayments, over two years at most, for capacity on a high-speed service Clearwire hopes to build using a faster technology known as Long Term Evolution, as long as Clearwire achieves certain network targets by June 2013.
Sprint, which has minority voting rights in Clearwire, also committed to providing more equity funding "in the event of an equity offering."
If Clearwire raised between $400 million and $700 million in new equity, Sprint said it would participate in the offering on a pro rata basis up to $347 million, consistent with its current voting interest.
The news was a relief for some investors who had fled Clearwire on October 7 due to comments by Sprint that led to fears that Sprint could abandon Clearwire.
(Reporting by Sinead Carew; Editing by Derek Caney and Gerald E. McCormick)