Moody's downgrades both Clearwire and Sprint
The WiMAX wholesaler sinks into junk territory as Sprint goes cold, but the CDMA carrier punished for adding "billions" to its 4G bill
Published: 18 October, 2011
READ MORE: Spectrum | US | Sprint Nextel Corporation | WiMAX
Influential credit ratings service Moody's has downgraded both Clearwire and Sprint after the latter announced its unpopular 4G strategy over a week ago, effectively relegating its long time WiMAX joint venture to the back burner.
Moody's has sent Clearwire's ratings deep into junk territory, citing the failure of the two firms to come to a long term agreement "despite over a year of torturous negotiations and several management changes at Clearwire". The agency cut the corporate family rating to Caa2 from Caa1 and its probability of default rating to Caa3 from Caa2.
Like most analysts, the firm believes Clearwire must find an alternative partner to Sprint quickly to raise funding for its LTE-Advanced plans and to rebuild confidence. Cablecos Time Warner and Comcast remain partners for now, and MetroPCS has expressed interest, but any deals will be complicated as long as Sprint retains its major shareholding. Some observers believe Sprint will wait for Clearwire's value to plummet and then snap up the whole company after all. But officially it will build out its own LTE network in its PCS and iDEN spectrum, and rely on a spectrum sharing and network hosting alliance with LightSquared, whose own LTE plans are in doubt because of the issue of GPS interference.
Moody's said in its report that Clearwire would be hurt financially once its WiMAX partnership with Sprint ended in late 2012 and needed additional funding to build its TD-LTE and LTE-Advanced networks. Clearwire has said it needs to raise between $150m and $300m for the maintenance of its existing WiMAX network and $600m to begin rolling out LTE-Advanced. Moody's believes that Clearwire will have to sell spectrum to raise this.
The ratings firm also downgraded Sprint itself, cutting its creditworthiness to B1 from Ba3 because the DIY 4G strategy will cost "billions more" than sticking with Clearwire. The ratings change impacts about $20bn of debt, wrote Moody's VP Dennis Saputo. "Sprint has missed an opportunity to save billions of dollars of capex by failing to reach a win-win arrangement with Clearwire," he said, as quoted by Bloomberg. "Instead, management will ratchet up the execution risk and go it alone for the 4G upgrade path." He believes Sprint will need as much as $8bn between now and the end of 2013 to fund the build-out and meet debt maturities.
In its third quarter preliminary results, Clearwire said it had added 1.9m wholesale customers during the period, a 29% increase on the second quarter, and it expects the final figures to show revenues of around $332m, up 126% year-on-year and up from $322m in Q211. Clearwire said it will end the third quarter with around 9.5m total customers, up from 7.65m at the end of the second quarter. Most of its wholesale adds usually come from Sprint.
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