Hedge fund Aurelius Capital Management LP on Tuesday offered $80 million in financing to wireless service provider Clearwire Corp CLWR.O as an alternative to convertible financing proposed by majority shareholder Sprint Nextel (S.N), which is trying to buy the rest of Clearwire.
The move by Aurelius, which typically invests in distressed debt, is the latest twist surrounding Sprint's controversial proposal to buy the roughly 49 percent of Clearwire it does not own. Shareholders have complained about Sprint's offer.
It follows an offer last week from Clearwire minority shareholder Crest Financial Ltd for $240 million in debt financing that would also be an alternative to what Sprint has offered.
Clearwire confirmed it received the offer from Aurelius and said its board's special committee would "evaluate the offer to determine what, if any, action to take."
Bellevue, Washington-based Clearwire, which has said it only has funding until year-end with help from Sprint, has been seeking financing to upgrade its network and to support operations.
Clearwire in January had received a preliminary counter-bid from satellite service provider Dish Network (DISH.O) for $3.30 per share.
DA Davidson analyst Donna Jaegers said the latest proposal gives Clearwire more choice for near-term funding, but it does not solve any long-term problems.
"I think (Aurelius) puts the pressure on Clearwire to look at some of the alternative funding, since it seems to be better terms than Sprint's funding," Jaegers said.
Jaegers said that Clearwire would still need Sprint to buy the company unless it receives a firm counter-offer for its spectrum or signs up new wholesale wireless customers besides Sprint, which rents space on Clearwire's network and is its biggest customer.
In a letter to Clearwire's board, Aurelius said on Tuesday that its notes would be exchangeable for Clearwire stock at $2 per share. (r.reuters.com/rad37t)
Clearwire has taken $160 million in financing from Sprint (S.N) so far this year in the form of notes that would be convertible to Clearwire stock at $1.50 per share.
It could take another $480 million of financing from Sprint in monthly installments of $80 million under the terms of their agreement. Clearwire had declined the Sprint funding in January and February because it was reviewing the Dish offer, which involved a condition that it avoid taking the Sprint financing.
Aurelius suggested that Clearwire could avoid taking more of the financing available from Sprint by combining its financing with the Crest financing and potentially find another $160 million from other investors.
Crest is among a group of Clearwire shareholders that have complained about Sprint's offer price of $2.97 per share, which would need approval from a majority of Clearwire shareholders.
The Sprint debt offering has also been controversial because since Sprint can convert Clearwire debt into equity it would reduce the clout of Clearwire's existing minority holdings.
Clearwire's shares have risen well above Sprint's offer price as many investors have bet that it will be forced to sweeten its bid. Clearwire shares closed down a penny at $3.26 on Tuesday on Nasdaq.
Aurelius urged Clearwire to accept its proposal within two weeks so the companies would have time to complete their paperwork before May, the next time Clearwire could draw on Sprint's financing.
Aurelius is known as an uncompromising hedge fund that involves itself in high-profile distressed debt cases. It was a major player in Tribune Co's protracted bankruptcy as lenders and junior creditors fought for four years before the newspaper and broadcasting company emerged from Chapter 11.
The fund has also taken on countries; Aurelius sued Argentina for $1.3 billion in payments on defaulted bonds.
(Additional reporting by Jennifer Saba in New York and Supantha Mukherjee in Bangalore; Editing by Dan Grebler and Leslie Adler)