IIOnline. SELL SIGNALS UPDATE: Why Iridium Shares Could Become Worthless
iionline.com
Director of Online Research: Dave Sterman
(5/14/99)
Don't say you weren't warned.
On three previous occasions we unabashedly warned you
to run away from Iridium (NASDAQ: IRID - Quotes,
News, Boards) -- and each time the stock headed even
lower.
February 2nd: 'SELL SIGNALS: Iridium Falling From the
Sky.'
April 5th: 'SELL SIGNALS UPDATE: Iridium's
Nightmare to Worsen.'
April 23rd: 'SELL SIGNALS UPDATE: Iridium is Going,
Going ......'
At a recent $10.81, Iridium's stock is down 66% since
we first recommended shorting it.
With each passing month, the company has been
delivering increasingly bleak news. From top management
defections to technical glitches to missed subscriber
targets, the global wireless phone provider has been a
maelstrom of bad news.
The latest dose of bad news has sent the shares crashing
through the $10 barrier (though the shares have
rebounded to $11 in late morning trading). The latest dose
of misery: Iridium will not be able to satisfy its debtholders
by the end of this month. By May 31, Iridium needed to
convince its lenders that it had a viable strategy to pay off
its mounting debt load. It won't.
Though the news sent the company's shares down,
bondholders took an even deeper hit. Iridium's 14% 2005
bonds tumbled 200 basis points and now trade at just
$0.18 on the dollar. But bondholders may soon be in a
better mood.
Ticking Death Clock
That's because the death clock on Iridium's equity has
started ticking. Simply put, they now have little recourse
to further funding. And without more money, they can't
even complete their capital expenditure program, let alone
make good with their bondholders.
As a result, Iridium's lenders will soon take control of the
company. And when that happens, the equity will be
worth less than the paper it's printed on.
On Friday morning, CE Unterberg Towbin's William Kidd
slashed his rating from Buy to Hold. In all six different
analysts have slashed their ratings to Hold or Neutral since
April 23. Analysts at Lehman Brothers and Soundview
have decided to maintain their Buy ratings for now.
Hmmm…
Bottom Line:
For the next few months shares of Iridium will likely hang
around the $10 range, as the company pleads for more
time. But soon enough, lenders will call in their chits and
foreclose.
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