WiMax network operator Clearwire may not be long for this world if they don’t make the the right decision about a looming debt payment. Bloomberg reports that the company owes $237 million in the form of an interest payment due on Thursday, and the wrong choice could spell the end of the beleaguered network operator.
At least part of Clearwire’s financial woes can be attributed to their sudden devotion to rolling out an LTE network. I like to think Clearwire brass saw the writing on the wall when it came to WiMax’s competitiveness, but it’s opened up a pretty sizeable can of worms. Building the sort of network Clearwire wants will take gobs of capital (around $1 billion, actually) and they’re not far off.
The company has around $700 million cash in hand right now — it’s clearly more than enough to cover their bill should they decide to pay, but it could severely dent their LTE network expansion plans for the time being.
Things could get a little dicier should Clearwire fail to make the payment. If Clearwire spoils their relationship with their creditors, then the potential for future funding becomes much more questionable. On top of that, future instability also means that Sprint (and all the other companies that resell Clearwire’s WiMax service) could be left in a weaker position if the company is forced to reorganize.
One could argue that there really isn’t a “right” decision to be made here, though I personally think they’re better off making the payment and living to fight another day. Fortunately for Clearwire execs, they may have a bit more time to decide if they feel it’s worth the risk. According to Bloomberg, Clearwire can take advantage of a 30-day grace period, but a representative from the S&P has said they may downgrade the company’s credit rating to a D if they don’t pay up within five days.
Barring any sort of miracle (like Sprint buying them completely) things are looking pretty hairy for Clearwire. It looks like the sort of situation that won’t be resolved without the company getting screwed somehow, and all I can do is wait with bated breath to see what happens next.