Encouraged by a wholesale pricing agreement that was announced Thursday, credit-rating agency Moody's Investors Service changed its outlook on Clearwire Communications LLC from negative to stable.
"The change in outlook reflects Moody's belief that Clearwire's relationship with Sprint, its largest customer and majority shareholder, is beginning to heal, which if sustained, foreshadows an improvement in Clearwire's operational and financial profile," Moody's Senior Vice President Dennis Saputo said.
Clearwire today announced a number of agreements with Sprint over the next four years that are worth up to $1.6 billion, including an agreement in which Sprint will pay $926 million for unlimited WiMAX retail services in 2012 and 2013.
"After more than a year of torturous negotiations Clearwire and Sprint were finally able to reach an agreement that lays the foundation for a mutually beneficial relationship that could take advantage of Clearwire's significant spectrum holdings, half of which were contributed by Sprint," Moody's said.
Still, Saputo said Clearwire must overcome numerous hurdles before the company and Sprint can fully realize the potential of Clearwire's spectrum holdings. One of the obstacles that Clearwire faces is raising "additional equity capital in a market environment that is tumultuous, especially for very low rated companies," he said.
Despite changing its rating outlook, Moody's affirmed Clearwire's Caa2 corporate family rating, Caa3 probability of default rating, and an SGL-4 speculative grade liquidity rating. The latter rating, Moody's said, "reflects the Company's cash burn rate, the lack of a revolving credit facility and its inevitable need for new capital despite the agreement by Sprint to pay Clearwire about $620M in 2012 for unlimited WiMAX 4G services."
New York-based Moody's explained that its action affects roughly $3.85 billion in debt.
