Iridium may miss financial goals, again (via I* thread)
By Corey Grice
Staff Writer, CNET News.com
June 29, 1999, 1:00 p.m. PT
Another creditor-imposed deadline is rapidly approaching for Iridium, a once-high
flying satellite phone firm that has fallen to Earth in the midst of grave financial
troubles.
Although the company may get more time to make good in the eyes of its creditors,
Iridium has until tomorrow to meet certain revenue targets and subscriber goals.
The company conceivably could be forced to file for bankruptcy protection if Iridium's
lenders are not satisfied with its progress.
Industry observers say bankruptcy is a last-case scenario, and one that nobody wants to
see happen. "Obviously all the parties are trying to stay out
of bankruptcy," said Marc Crossman, vice president of
research at J.P. Morgan Securities.
The international mobile phone service provider has had
difficulties signing up customers for its costly satellite phone
and paging service, and has fallen short of prior target levels.
Likewise, the company has been in danger of defaulting on
its loans since early this year.
Some analysts expect lenders to offer another extension for
Iridium, following two previous 30-day extensions when the
company fell short of expectations.
Large investors in Iridium include Motorola, Sprint, Veba AG,
a German conglomerate, China Aerospace, and Italian
telecommunications group Stet.
"If they were to be called into default tomorrow, it would almost guarantee a bankruptcy
scenario," said William Kidd, an analyst at C.E. Unterberg, Towbin. "While bankruptcy
remains a distinct possibility, I don't think that will happen tomorrow."
Many industry observers don't necessarily expect Iridium to meet its revised subscriber
goals and revenue targets, which have been ratcheted upward with each extension.
Each extension, they say, simply hangs over Iridium as a constant incentive to get back
on track--allowing lenders to effectively keep the company on a short leash.
"It's so that if at any point the bankers don't feel comfortable, they have a mechanism for
backing out. It's a form of control over the process," Kidd said. "This would be the last, or
next-to-last extension in our opinion. I don't think this can go on much longer."
The company, which ended March with more than 10,000 customers, must have at least
27,000 satellite phone customers by June 30 under its revised bond covenants.
Separately, Iridium has a $90 million bond payment due July 15, a date analysts said may
prove to be more significant than tomorrow's deadline. The company has a 30-day grace
period to make the bond payment, making August 15 a critical date, J.P. Morgan's
Crossman said.
Missing a payment is more important than missing target goals, he said. Crossman has
an "underperform" rating on the stock.
"I'm personally skeptical that they'll reach an agreement [on payment restructuring] by July
15," Crossman said. "I just know that you have a lot of different parties involved, including
bankers, bond holders, and investors, and getting them all to agree on one unified plan will
take time."
An Iridium spokeswoman declined to comment on the state of negotiations with the
company's creditors. But, Iridium is expected to issue a statement tomorrow updating
investors on the company's status, she said.
After seeing its stock price plummet this year, the company has taken several strides
recently toward improving its standing with investors.
Last week, Iridium announced new pricing and marketing plans aimed at adding
customers. The company also laid off employees and backed away from its proposed
purchase of Claircom Communications Group to cut costs. The stock has rebounded
slightly in recent weeks.
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