Clearwire & LightSquared: Stymied by Borrowing Woes?

5:50 PM -- With the Standard & Poor’s downgrade on the U.S. government and the subsequent stock market dip likely making it harder and more expensive to borrow capital, who would want to be a young mobile operator taking on a risky mobile broadband deployment plan right now?

Financial analysts and the business press are already questioning where Clearwire LLC (Nasdaq: CLWR) will get the $600 million it says it needs for an Long Term Evolution (LTE) overlay on parts of its existing WiMax network.

Standard & Poor’s revised its outlook on Clearwire from "developing" to "negative" last week. It puts the Clearwire corporate credit rating at "CCC+" now and says it is unlikely to raise the rating on Clearwire to "B-" over the next year given the operator's need for capital.

Forbes reports that Merrill Lynch & Co. Inc. analyst Michael Funk notes that the company could run out of money by mid-2012. Among Clearwire's funding options are equity and debt funding. "Current market conditions and Clearwire’s cash flow profile limit access to the equity capital market," Funk writes. While secured debt requires more equity funding.

Meanwhile, Funk thinks that Sprint's LTE deal with LightSquared makes Sprint less likely to fund Clearwire in the near future.

Which, to me, begs the question, is LightSquared going to be that much better off in this environment trying to raise the capital it needs to pay Sprint to deploy its LTE network?

First, the GPS issue is currently still hanging over LightSquared right now. Second, it will still take Sprint around three years to deploy LTE on its network. So, LightSquared won't be able to start adding wholesale subscribers until some time in 2012 and won't have nationwide coverage until around 2015.

LightSquared may be the newest wholesale mobile broadband provider, but, with its own deployment challenges and the downturn in the stock market, there will definitely be some bumps in the road ahead for the operator.

— Dan Jones, Site Editor, Light Reading Mobile

COMMENTS Add Comment
alandal 12/5/2012 | 4:56:38 PM
re: Clearwire & LightSquared: Stymied by Borrowing Woes?

Sprint has a better prenuptial agreement with L2 than the one with CW....

joset01 12/5/2012 | 4:56:35 PM
re: Clearwire & LightSquared: Stymied by Borrowing Woes?

Yah, doesn't change the fact that L2 has to raise massive amounts of cash for Sprint to build its network.

alandal 12/5/2012 | 4:56:29 PM
re: Clearwire & LightSquared: Stymied by Borrowing Woes?

It's much easier for L2 now. Privously they had to build a sizable network to attract small/regional LTE carriers, which demands a huge up-front amount of $$$$. Now Sprint can roll out the coverage at their choosing and pace, and all paid by both L2 and Sprint over MANY years.


It's also easier for Sprint to raise money since they lock in L2 and become a whole sale carrier through L2.

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