By Sinead Carew
NEW YORK (Reuters) - Clearwire Corp
Clearwire, majority owned by Sprint, is seeking almost $1 billion in new financing to keep operating and to pay for a network upgrade that is crucial for it to compete in the U.S. market for high-speed wireless services.
A source familiar with the situation said on Wednesday, a day ahead of the deadline for a $237 million debt interest payment, that Clearwire was "optimistic" it could reach a funding deal with Sprint, but details were still being worked out. Sprint and Clearwire declined to comment.
Clearwire shares closed up 12.66 percent at $1.78 on Wednesday, after rising as much as 18 percent earlier in the day.
The company had $711 million in cash at the end of the third quarter. But Clearwire's Chief Executive Erik Prusch told the Wall Street Journal earlier this month that the company was considering skipping the payment due on Dec, 1, prompting its stock to fall as much as 31 percent.
Some analysts saw his comments as little more than a negotiating tactic in Clearwire's discussions with Sprint, which in addition to being its majority owner is also Clearwire's biggest customer.
The companies' tempestuous relationship came to a head on October 7 when comments by Sprint, suggesting that a Clearwire bankruptcy could be "constructive", caused Clearwire investors to flee.
Since then, the companies have said they are working on an extension of their network agreement for services beyond 2012, when their current pact expires.
Some investors worry that Clearwire needs to at least seal the network agreement with Sprint before it can convince any potential equity or debt investors to provide financing.
At least one analyst expects Sprint to be part of the funding, as it recently raised $4 billion in debt markets but may not need all of that money immediately.
"They've reached a detente," Macquarie analyst Kevin Smithen said of Clearwire and Sprint. "As soon as Sprint got their $4 billion in funding they were keen to get a deal done."
Smithen said Sprint and Clearwire could announce an agreement as soon as this week and, if not, he expects an agreement to be signed by year end at the latest.
Clearwire has a 30-day grace period in which to make its debt interest payment if it fails to do so on December 1.
UBS analyst John Hodulik said it would not be in Clearwire's interest to skip the December 1 payment.
"We believe going into default is not a step the company wants to take, as even if the default is cured during the grace period, the act of defaulting would make it very difficult to secure vendor financing," Hodulik said.
Another source agreed "the odds are they'll make the payment tomorrow," according to one restructuring banker observing the companies. The person said that waiting out the grace period would be like "putting a gun to its head."
The banking source, who asked not to be named, said that if Sprint were to invest more money in Clearwire it should only do so in a way that gives it the option to eventually buy the entire company.
"Whatever they're doing now about making a new investment should only be done as a path to control the whole thing," the person said.
Clearwire has said it needs up to $300 million to fund operations and another $600 million to upgrade its network.
Chief Financial Officer Hope Cochran told Reuters in September that Clearwire could gain $300 million of the funding from vendor financing, where the vendor would offer a loan for the value of the equipment as part of the sale agreement.
But Clearwire would only buy equipment if the rest of the funding was in place, according to Cochran. He said the remaining funding could include a roughly $300 million equity investment from a strategic partner, which would allow Clearwire to raise more debt.
Sprint shares closed up 20 cents or 8 percent at $2.70 on New York Stock Exchange on Wednesday.
(Additional reporting by Nadia Damouni; Editing by Peter
Lauria and Tim Dobbyn)