Looks like default is now a definite. As CEO, you don't muse publicly about defaulting unless you have decided to do it.
Some have thought this is a negotiating ploy and S won't let it happen. IMO, S has already told you on Oct 7, that they are ready for CLWR to go BR. It does no good for CLWR to continue to say, "you are bluffing". CLWR either needs to fold, or pay to see the cards.
So CLWR defaults on Dec 1. I don't see stock going up on that news. 30 day clock is then ticking. If CLWR thinks this forces S hand, they have underestimated S position AGAIN, IMO. However, if CLWR is able to credibly threaten turning out the lights, then S will need to act. However, I don't think CLWR can easily turn the lights off.
CLWR default puts ball in S court. S tries a little harder to make a deal, but essentially refuses to play. Ball back in CLWR court. CLWR options are then to 1)concede and do a LT deal with S on S terms
2)use almost 1/3 of remaining capital to make pmt and hope for something good to happen in next couple of months
3)default and see where chips land
Sprint agreed to pay them $500M/yr for a network that costs at minimum 1.2B/yr to operate. With those #'s, they could straight line and see where they would end up and when.
The ATT/TM deal effectively removed 2 primary bidders from the mkt. At that point, CLWR knew it was pointless to try and sell spectrum until things got better. Unfortunately, they may not make it there.
They tried in early 2011. They then said they had decided against it as the spectrum was too strategic. Read BTW the lines, they couldn't get enough for it. Who knows what enough was at the time, but I would guess it was somewhere above what was owed on the spectrum + equity or somewhere north of .13 mhz/pop.
I own a really tiny position in CLWR for couple years.
Just enough to keep an eye on this stock.
My question is , if CLWR management didn’t plan to go BK,
Why they would not try to auction out some spectrum they own?
Or at least try to play this card and tell press that it is one
of the options they consider to lower their debt ?
clwr spect price post $50 billion (closer to) than 20billion (commonly used)
for value of spectrum bandwidth determinations
Some other relevant highlights:
"(Clearwire's $20 billion valuation of its spectrum may prove to be conservative; J.H. Snider, president of policy think-tank iSolon.org and former research director at the New America Foundation's Wireless Future Program, puts the number closer to $50 billion.)"
AT&T and Verizon bought their spectrum that can be used for 4G at government auction in 2008, paying a combined $16 billion.
However the 4G race shakes out, Clearwire can count on its "oceanfront" spectrum holdings to remain valuable even if the company's retail efforts fizzle. For example, consumer electronics companies have recently been expressing interest in including Clearwire's service with Internet-enabled devices like computer tablets, Morrow says.
"A lot of spectrum is extremely valuable when you think about the exponential growth of mobile broadband data needs," says Sriram Viswanathan, an Intel vice-president and general manager of its WiMAX program.
"Anyone that has more spectrum is going to be in a much better position."
Or, as Belk puts it: "You can never be too rich, too thin, or have too much spectrum."
The bottom line: Even if Clearwire's retail business sours, it will be able to resell 4G services to other carriers and device manufacturers.
With additional reporting by Peter Robison,
Clearwire has the near term prospect of lighting the fuse on the debt payment bomb... while for most companies that would be seen as a last ditch desperation move.. Clearwire has been discounted on the basis that they have been playing Keystone Cops in efforts to find new partners and funding for so long that taking this "inaction action" looks like they are more in control and have a chance of coming out with greater financial stability. When is doing nothing something? When everyone expects doing nothing is all they will ever get.
The framing of the situation as you suggest is critical here, and simple knee jerk sell-offs only shake out non-value day traders.
While the industry businesses that actually leverage the strategic asset will seek competitive advantage.
Here's where vision can conquer deep pockets.
Clearwire is uniquely positioned to determine the industry players that will succeed or fail. (dyodd)
No, I am pretty sure the mkts will see the non pmt as doing something, and pretty sure it will not be positive.
Having said that, when you are on a dead end road, you don't have to get to the end to turn around. If CLWR sees no outs, making this debt payment could be deemed irresponsible.
BR can result from liquidity issues. Reference General Growth and Nextwave to name a few. It does not always mean insolvency.
CLWR has already told you that they need add'l capital to continue to operate. Even if the spectrum is worth a quazillion, if they can't monetize the spectrum and ops are losing money, BR is inevitable.
I think there is a decent chance the spectrum is worth more than current market valuation. How do you propose for that to be realized? BTW, my estimates also range to where spectrum is worth less than what is owed, but this is on lower end.
Earnings? Really. CLWR has never had anything but losses. In addition, they have never forecast anything but losses. Even if they get to EBITDA positive, that does not take into acct. interest (just $500M/yr) or depreciation (a very real cost). So, no earnings for foreseeable future.
As to $2, I am sure some can trade around that, but most here seem to be buy and hold.
OK, now we are getting somewhere.
First, the base article from BW is from May 2010. It would be fair to read the entire article and see how its predictions/forecasts compare to what has happened, especially if we are going to use its spectrum valuation as the cornerstone of our investment analysis. The article pretty much misses huge, so then we move on.
Second, the link to the blog correctly identifies the $20B number as being based on the $ paid for 700 Mhz ($.50/mhz/pop). I could get detailed here and go into why CLWR spectrum and 700 mhz are apples and oranges, but I've done that b4. Lets just say if you consistently see land on the beach selling for $1 million an acre and land around you selling for $200K/acre, you are foolish to argue that your property is worth $1mil/acre. For this reason, a much better approximation is the value paid by Dish in recent BR proceedings (around $.21 I think). From that you have to back out NPV of lease pmts, which I think is around $2B.
Third, CLWR owns a lot of spectrum. So much that all of it can't be used in the near future. If you are buying land you aren't going to use for years, you need to discount the price for tying up your money. Some would argue that CLWR only needs to sell some to fund their OPEX, and I agree. But you can't value all of the spectrum at optimum prices and be realistic.
Fourth, any big spectrum deal would need S appvl., so some of the value will be diverted to S and this could be substantial. That is why minority positions in partnerships always are valued less than majority positions.
Fifth, if you are trying to sell your land based on its value for development, but there are just a few huge developers who control the mkt, you will not be able to get your price. You will accept their price and only when they are ready.
So, based on all the above, you can probably start to calculate the true value of CLWR spectrum. I can guarantee it is nowhere near $20B. You can review the European auctions to see the range of pricing and try and discern the differences. The biggest differences is wether the mkt is competitive, or controlled by a duopoly/monopoly and can have an order of magnitude difference.
Even w/ a wide range, the biggest number I come up w/ is $8 bil. Most if not all here would take that. Unfortunately, the range goes below $5Bill which would wipe out equity.
The wild card is one of the big tech cos. MSFT is not creative enough. Apple and Google could be players (not as owners, but strategic partners), but I would think that especially Apple is sitting out until ATT/TM deal is resolved. CLWR probably can't wait for that unless ATT decides to suddenly abandon merger (not out of the question).