Bob:
I don't think that BK will work differently if G*'s bonds are secured or unsecured.
Let's assume that G*'s bonds are unsecured, i.e., there is no collateral for them. Here's how the BK would probably work (it would work the same if G*'s bonds are secured by substantially all of the assets of G*, which is probably the case but I don't know):
Even though G*'s bondholders are unsecured, they are still debtholders. As debtholders, they are entitled to foreclose on their debt by selling off assets of the company unless someone else has a security interest in the assets of G* (most likely Loral and the Q as part of their vendor financing received a priority lien on at least the assets that they are financing). The fact that those assets weren't pledged as security doesn't matter. A debtor doesn't need to be secured to collect a debt (is a credit card company secured?).
What does this mean for G* in reality? G* bondholders and bank debtholders (assuming that neither has priority over the other) each have a right to the assets of G* to pay off the debt owed to them. Since there are no assets of G* that are worth auctioning off individually, the only asset of value is the business itself (and perhaps the licenses, but I*'s BK indicated otherwise). So, the debtholders--who in essence control the company via veto power--will force the company to sell G* to the highest bidder. The debtholders will take the vast majority of any sales price, which would likely include cash ($.20 on the dollar of debt?) plus an equity portion of post-BK G* (which would be virtually debt-free). A few pennies per share (literally) will be tossed the way of the common shareholders (and L.P. equity holders).
In short, I don't think it's worth wasting your time determining if the bondholders have collateral or not. Even if they are unsecured, the bondholders (along with bank debtholders) will have veto power over the company's actions in BK.
Anyone who doesn't think the above scenario isn't feasible is, imo, kidding themselves. That's why the bonds are trading at $.30. Bondholders, on the whole, are much better at determining the value of a company, so a bond price usually isn't subject to wild swings in value like a stock (this, imo, is largely due to the lack of a substantial retail presence in the corporate bond market). Debtholders are very risk-adverse, so foreclosing and taking what they can get--even though the business may succeed and, as a result, repay its debt in full--is sometimes chosen even though equity holders can make an argument for the company's ultimate success (don't forget, the bondholders usually get an equity position in the new company, so they will want it to succeed)
As Maurice stated, the installed GWs are owned by the SPs (although payment for the GWs is quite slow--perhaps a foreshadowing by the SPs, the holding off paying a soon-to-be-BK entity). Therefore, the purchaser of G* in BK would not own the GWs. Obviously, G* can't operate without the SPs operating the GWs. Clear cooperation would be required by any purchase and the GW owners. In other words, the purchaser of G* probably wouldn't be a direct competitor of the SPs. That rules out most of the potential buyers of G* besides the SPs themselves or some deep-pocketed investor (GE, MSFT, Gates, McCaw, etc.).
I say this in light of my prior post in which I indicated that I didn't think (and still don't think) that BK is the likely outcome. But it is possible. You might as well know how the process "works."
All imo. Corrections appreciated. |
