Sprint Locks in Clearwire, Avoids Restructuring For Now (S, CLWR)

Sprint Nextel Corporation (NYSE: S) has decided not to leave Clearwire Corporation (NASDAQ: CLWR) in the dust.  The two companies have had a history of tie-ups and the risk that it is going to end seems to now be in the past.  News is out that the two have signed agreements worth up to a potential $1.6 billion, and the net effect is that it provides funding for Clearwire and sort of alleviates any restructuring (potential bankruptcy) by Sprint for the time being.

The pact is over the next four years for WiMAX services, and includes possible pre-payments for LTE services and potential equity investments.  Sprint has committed to providing additional equity funding to Clearwire in the event of an equity offering. If Clearwire raises new equity between $400 and $700 million, the Sprint “will participate in the offering on a pro rata basis up to $347 million, consistent with Sprint’s current voting interest of 49.6 percent on the same terms and conditions as other participating companies.”

Under the terms of the agreements, Sprint will pay Clearwire a total of $926 million.  The companies noted that about two-thirds of the payments will come in 2012 for unlimited 4G WiMAX retail services during 2012 and 2013.  Clearwire has simultaneously announced that it made interest payments of $237 million on its first-priority, second-priority and exchangeable notes which were due Dec. 1, 2011.  That should alleviate any of the bankruptcy fears, at least for the time being, as Sprint had previously communicated that it had considered not making a coming interest payment.

The move is aimed to further align Clearwire’s LTE network build as a complement to Sprint’s Network Vision strategy.  Sprint is claiming that it gets improved pricing while still allows it to continue providing WiMAX 4G services to customers.  Clearwire calls this an important step in funding its business.

The other note about the terms is that this establishes long-term usage-based pricing for WiMAX services in 2014 and beyond, giving Sprint access to Clearwire’s WiMAX network through at least 2015. Sprint plans to continue selling WiMAX devices with two-year contracts through at least 2012 and support those devices through the life of the contract.

Clearwire is halted and briefly traded up at $1.85 after closing at $1.78 and its 52-week range is $1.24 to $6.80.  Sprint Nextel is down 5% at $2.57 on the news and the 52-week trading range is $2.10 to $6.45.  No good deed goes unpunished.

JON C. OGG