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Clearwire Gets Dreaded Ratings Cut Amid Dangerously Low Cash Supply

Standard & Poors Ratings Services has lowered all of its ratings on Clearwire Corp. in light of the WiMAX operators uncertainty about securing more capital and remaining in business.

S&Ps move comes as Clearwire plans to cut about 380 jobs amid a looming cash crunch. Clearwire expects to run out of cash by mid-2011, it disclosed in a recent regulatory filing. To that end, S&P downgraded Clearwires ratings from B- to CCC which means the firm in question is vulnerable and depends on favorable business, financial and economic conditions and placed the Washington-based company on the developing” CreditWatch listing.

“Although Clearwire is initiating several cost-reduction measures, we still expect that its cash balances will reach dangerously low levels in early 2011 given its substantial capital requirements and operating losses to support the network deployment,” credit analyst Allyn Arden said in a press release. Moreover, while the company is pursuing several options to raise capital, including potential spectrum sales, additional debt, or equity, it is uncertain, in our view, that it will be able to obtain sufficient funding.”

Clearwire launched the first 4G network in the United States several years ago thanks to the backing of companies including Sprint Nextel Corp., Comcast, Google and Intel. But Clearwire chose to run on the WiMAX standard, even as the LTE protocol took precedence worldwide. In the United States alone, both Verizon Wireless and AT&T Mobility are building LTE networks. And a recent study from 3G Americas found LTE has become the platform of choice, with five commercial deployments in four countries and about 250 more LTE commitments worldwide. WiMAX, while popular in some parts of the globe, such as Russia, is seeing slowing adoption.

That momentum is working against Clearwire, which, despite its fondness for WiMAX, has seen the LTE trend coming. Earlier this year, the provider said its testing ways to offer LTE as well as WiMAX services but little seems to have come of those trials.

Meantime, S&P is keeping a close watch on Clearwires balance sheet. S&P may raise Clearwires ratings if the carrier lands sufficient capital for the next 12 to 18 months.” To do that, Clearwire needs to obtain new equity or debt or sell some of its spectrum, S&P said. If none of that happens, though, Clearwire well could face bankruptcy, S&P noted.

Shares of Clearwire were trading down 3.68 percent by about 11:35 a.m. Eastern on Tuesday, at $6.29.


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