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Clearwire in a bind as debt payment looms

The cash-strapped company is reportedly considering skipping its debt payment as it seeks funding.

Clearwire is considering whether or not to make a major loan payment as the cash-strapped wireless provider looks for financing options.

The company is supposed to make a $237 million payment on December 1. With $698 million in cash and short-term investments as of September 30, it can certainly meet the obligation, but at the cost of a significant chunk of its remaining war chest. As a result, the company is debating whether to skip the payment, according to The Wall Street Journal.

Clearwire, which operates a 4G WiMax network used by Sprint Nextel and other wireless resellers, is at a point that could decide the company's fate. It needs to raise significant cash both to keep its operations going and to follow through with its plans to upgrade its network to LTE technology, which is vital to maintaining its relationship with Sprint, the company's largest customer and investor.

That Clearwire would consider skipping a payment exemplifies the company's tight financial condition. It also suggests the difficulties in building out a network for an independent company.

"It's a very expensive payment that we have," Chief Executive Erik Prusch said in an interview with the Journal. "It would be a significant drain of our cash, so we have to evaluate everything in terms of our decision of where we're going."

Companies that miss debt payments tend to raise red flags with investors. Clearwire already has a pack of nervous shareholders. Such a move would exacerbate fears that the company could end up in bankruptcy court.

But Mizuho Securities analyst Michael Nelson believes the threat of a missed debt payment is a negotiating tactic against Sprint.

"We believe the announcement places pressure on Sprint to provide funding," he said. "Sprint has the most to lose in the event Clearwire defaults and potentially files for bankruptcy."

Sprint, has previously been reluctant to commit to providing financial support. But Sprint recently raised additional funds through a debt offering, and stated one potential use for the cash as funding for Clearwire. Analysts have said the relationship between the two have warmed considerably since the agreed to work together in planning for Clearwire's LTE migration.

Sprint could inject $500 million to $600 million into Clearwire by the end of the year in the form of a prepayment or loan, said Macquarie Securities analyst Kevin Smithen.

Clearwire has a 30-day grace period after December 1 to make the payment. The company is pursuing several financing options that might shore up the money-losing business. These options include issuing more debt or stock or selling unused spectrum.

The company needs to raise $150 million to $300 million to continue its operations, and another $600 million for the LTE upgrade. CEO Prusch told CNET in September that he was confident the funding would come by the end of the year.

Updated at 1:04 p.m. PT: with comments from analysts.