Clearwire could miss debt payment: The fallout

Clearwire has a big conundrum: Make its debt payment and drain its cash position or skip it and take its chances.

Clearwire may skip a $237 million debt payment Dec. 1 as the company continues to struggle with funding.

The Wall Street Journal quoted Clearwire CEO Erik Prusch saying that the company may skip its debt payment. Clearwire can make the payment, but it would drain its cash position.

Clearwire has a 30-day grace period and the company could restructure its debt or raise more funding. Given that Clearwire hasn't been able to raise more money, a restructuring can't be ruled out.

If Clearwire were to be restructured in or out of bankruptcy court, there's a risk the network could go dark. It's unlikely that Clearwire's network would be shut off, but Sprint could be greatly affected.

In a research note, Morgan Stanley analyst Simon Flannery walked through the Clearwire scenarios. Among the key points:

  • Sprint isn't going to invest in Clearwire unless there is a restructuring. Sprint's financial flexibility is limited by its iPhone deal. Simply put, Sprint can't absorb Clearwire's $4 billion in debt if it wanted to.
  • Clearwire could raise more money, but short of fundraising the company will have to miss a debt payment. Clearwire is in a tough spot because the debt payment could reduce its cash balance and trigger a going concern disclosure, which can mean a bankruptcy isn't too far behind.
  • A network shutdown at Clearwire would be disastrous for Sprint. Flannery estimates that 8 million smartphone and mobile broadband users would be affected.
  • Clearwire restructures, the network still works and spectrum is auctioned off to wireless carriers. Sprint would be a likely bidder.

It's anyone's guess where Clearwire goes from here, but missing a debt payment is usually not a good sign.