Clearwire: The B Word Rears Its Ugly Head

Clearwire Corp., the high-speed mobile operator that has endured a rocky relationship with its majority investor and key wholesale customer Sprint Nextel Corp., could be in over its head.

The Bellevue, Wash.-based company owes a chunk of change on Dec. 1: $236.9 million in interest payments, according to a regulatory filing with the Securities and Exchange Commission.

As of Sept. 30, Clearwire had on hand $697.8 million in available cash and short-term investments.

But the provider of wholesale and retail wireless services is burning through cash and considering an option many of us reluctantly adopt out of necessity when a big bill comes due: not pay it.

"It's a very expensive payment that we have," Clearwire Chief Executive Erik Prusch told The Wall Street Journal in an interview recently. "It would be a significant drain on our cash, so we have to evaluate everything in terms of our decision of where we're going."

Clearwire has a 30-day grace period to make the payment, the Journal reported, and sources told the paper that the company is discussing its options with restructuring experts at Blackstone Group LP and law firm Kirkland & Ellis LLP.

The looming debt payment -- and Clearwire's struggles in securing additional funds -- have raised the ugly prospect that the company could find itself in the unenviable position of having to file for Chapter 11 bankruptcy protection.

"Our recent efforts to obtain additional capital have been hampered by, among other things, continued volatility in the capital markets, declines in the trading prices of our outstanding debt and equity, recent announcements by Sprint related to its future 4G business strategy and the perceived impact of Sprint’s new 4G strategy on our business and the value of our assets," Clearwire stated in an 8-K filing earlier this month. "If these events continue to adversely affect us, additional capital may not be available on acceptable terms, or at all."

Added the company: "If we are unable to raise sufficient additional capital or fail to receive adequate further wholesale commitments from Sprint, our business prospects, financial condition and results of operations will likely be materially and adversely affected, and we will be forced to consider all available alternatives."

One of those options would be to file for Chapter 11 bankruptcy. Such a move would be a death-knell for shareholders and place Clearwire's partner Sprint in an awkward position. Chapter 11 bankruptcies often mean shareholders walk away empty-handed while holders of debt get an equity stake in a restructured company.

Clearwire's largest bondholders, the Journal reported, want to avoid bankruptcy and have met separately with Sprint, urging an alternative to Chapter 11 -- namely that Sprint buy Clearwire in an all-stock agreement.

Whatever happens, one thing is certain: Clearwire needs to buy itself time to run a business that isn't bleeding a mountain of cash. During the nine months ending Sept. 30, the company had incurred $2.21 billion of net losses from continuing operations.

Clearwire's stockholders may be in for a lousy holiday season.