Iridium Shares Rise on Prospects for Positive Restructuring [14:50]
Washington, June 23 (Bloomberg) -- Shares of Iridium World Communications Ltd.,
which runs the first global satellite- telephone network, rose as much as 16 percent,
continuing a recent climb because of hints that an Iridium restructuring might be more
positive than originally envisioned.
Iridium shares rose 1 5/8 to 11 15/16 in midafternoon trading after rising as high as 12
earlier. The stock has risen about 47 percent this week and 85 percent in the past seven
trading sessions. A year ago, it traded at 54 5/8.
Iridium, which is 18-percent owned by Motorola Inc., has until June 30 to meet the
terms of $800 million in bank loans, a deadline that was extended 30 days. The rally
stems from indications that a positive restructuring may be announced soon, analysts
said. Also behind the rise is scramble by investors to cover short sales, which account
for a large segment of the shares outstanding.
''The stock had been so shorted in recent weeks that you could not have borrowed
shares if you were God,'' said William Kidd, an analyst at C.E. Unterberg Towbin with
a ''sell'' rating on the stock. ''Like other short squeezes, when the shares start to move
up and so many are betting negative, pain often begets more pain.''
People who sell short hope to profit by repurchasing the stock later at a lower price and
returning them to the lender. As of May, about 4.8 million shares, or almost 25 percent
of Iridium's shares outstanding, were sold short. That exceeds the 4.42 million shares
sold short as of April.
Last week, a Motorola official said he expects ''significant'' developments to occur at
the cash-strapped company by the end of the month. Iridium told analysts on a
conference call on Monday that it sees ''a fairly positive'' announcement on the
restructuring by the end of the month or early July, Kidd said.
Price Cuts
The company also said Monday that it plans to cut prices for its service by as much as
65 percent and introduce a flat rate for international customers, an effort to boost the
number of customers, which is part of the conditions on its bank loans.
Iridium bonds also have risen in recent days, though not nearly as much as the equities,
and are still trading at a level well below the stock. Its 14 percent bonds due 2005 have
risen 4 points, or $40 per $1,000 bond since Monday, to 22. Still, at a price of 22, the
notes have fallen about 77 percent.
''The bondholders are aware of what the company is worth and they hold all the cards,''
said Jack Hersch, a portfolio manager at Scoggin Capital Management LP, a New
York-based hedge fund that invests in distressed situations. ''They are creditors, after
all, at the end of day. It's what they want that will happen, not what the equity wants.''
Jun/23/1999 14:50
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