Clearwire slammed as CEO reportedly mulls default

NEW YORK (AP) - Shares of wireless broadband network operator Clearwire Corp. plunged Friday after its chief executive told The Wall Street Journal that the company is weighing whether to make a large interest payment on Dec. 1.

Erik Prusch said that if the company misses the $237 million payment, it has a 30-day grace period to make it. As of Sept. 30, the company had $698 million in cash and short-term investments, and it had about $4 billion in net long-term debt.

"It's a very expensive payment that we have," Prusch said in an interview with the newspaper. "It would be a significant drain of our cash, so we have to evaluate everything in terms of our decision of where we're going."

Fears that the company will default and possibly try to reorganize through bankruptcy proceedings sent the shares spiraling. In such proceedings, shareholders are often left with nothing while creditors can be forced to forgive debt in exchange for ownership of the company.

Clearwire's stock fell 39 cents, or 21 percent, to close at $1.47 Friday.

Clearwire spokeswoman Susan Johnston said that the company "does not comment on speculation" and "remains focused on growing its wholesale and retail business, and raising additional funds."

Clearwire, which is based in Kirkland, Wash., is majority owned by wireless carrier Sprint Nextel Corp. Sprint is Clearwire's biggest customer and resells access to Clearwire's network as "Sprint 4G."

Sprint said last month that it had no plans to continue selling phones compatible with Clearwire's current network after 2012. It also detailed plans to set up its own fourth-generation, or 4G, data network.

Clearwire's network uses a technology that isn't compatible with the 4G technology that the rest of the industry, including Sprint, is adopting. It wants to upgrade to the standard 4G technology, known as Long-Term Evolution, or LTE. But its finances are weak, and it would need additional funding to do so.

Moody's Investors Service last month slashed credit ratings on Clearwire deep into junk territory, saying it needs to find a partner other than Sprint if it is to avoid default in a couple of years. Moody's corporate family rating on Clearwire is "Caa2," just four notches above default and 17 away from the top "AAA."

Macquarie analyst Zach Horat said in a research note Friday that he thought a default was unlikely and that talks between Sprint and Clearwire "have entered a more cooperative phase."

He expects Sprint to inject $500 million to $600 million into Clearwire by the end of the year and enter into a long-term network hosting deal. He also said he expects MetroPCS Communications Inc. to become a new strategic partner for Clearwire. He has an "outperform" rating on the shares with a price target of $3.60.

Upcoming Events