Sprint Update: Clearwire Plays Chicken With Sprint on Debt Payments

Clearwire (NASDAQ:CLWR) has warned that it could skip a $237 million debt payment which is due on December 1st, citing that it would be a significant drain on cash. ^[1] After the news, Clearwire’s stock went down by more than 20%. We believe that the statement may be aimed at pressuring Sprint (NYSE:S) into extending a network-sharing agreement with Clearwire as both depend on each other. Sprint has a 54% non-controlling stake in Clearwire, which means that any major stock decline for Clearwire will affect Sprint as well. ^[2] Sprint’s stock may continue to be volatile as it struggles to compete against larger rivals like Verizon (NYSE:VZ) and AT&T (NYSE:T) in the U.S. telecom market.

See our complete analysis for Sprint stock here

Sprint-Clearwire relationship

A few weeks back, Sprint mentioned that it is tapping the bond market for the first time in two years, and planned to use part of the notes proceeds to fund Clearwire (see Sprint Taps Bond Market, May Help Fund Ailing Clearwire). Another report suggested that Sprint and Clearwire are near an agreement to extend their existing network-sharing agreement for three to five years (see Sprint’s Weekly Notes: Earnings and Clearwire Deal Extension). The deal would allow Sprint to use Clearwire’s network to provide services to its customers after the current pact expires at the end of 2012, and that the price Sprint pays for Clearwire to handle its traffic is likely to fall.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Clearwire May Skip Debt Payment, Wall Street Journal, November 19th, 2011 [↩]
2. Information on Clearwire stake available in Sprint’s SEC filings [↩]