*Despite vacillating market, MSS lures investment interest
July 2, 1999
By Elizabeth V. Mooney
NEW YORK—‘‘The best news I will present today is that, for the first
time in more than a year, there is significant interest by institutional
investors'' in private equity investments in satellite companies, said Hoyt
Davidson, managing director of Donaldson, Lufkin & Jenrette Securities
Corp.
‘‘There also is continued interest by strategic investors willing to take
early-in risk, and that tells me this industry will survive,'' Davidson said at
the recent ‘‘Space and Satellite Finance Conference,'' sponsored by the
Institute for International Research, New York.
Nevertheless, the sector must overcome the bad impression left by recent
history, said John Bensche, senior vice president of satellite services,
Lehman Brothers Inc.
Iridium L.L.C. has received extensions to its covenant deadlines—three
times—to avoid defaulting on its loans. Orbcomm Global L.P. has had a
slower ramp-up than expected. There have been three rocket failures.
ICO Global Communications found lackluster interest in its recent rights
offering, which would allow existing shareholders to buy future shares at a
discount to the public price.
Also, ‘‘There is political uncertainty over export licenses, and that has cast
a bit of a pall among some investors,'' Bensche said.
‘‘The picture looks pretty bleak right now, but the pendulum swings
between greed and fear.''
Between June 1998 and June 1999, the stock price of publicly traded
satellite companies declined by 25 percent while the S&P 500 increased
by 17 percent, said William W. Sprague, president of Crest International
Holdings L.L.C. No new significant initial public offerings have occurred.
Satellite firms raised $3.2 billion of high-yield debt financing during this
period, down from $5.1 billion during the prior 12 months, Sprague
added.
Virtually all of the more recent junk bond financing occurred during the
first quarter of this year when ‘‘mobile satellite systems rushed to market in
advance of negative results from Iridium,'' said Tracy Mehr, vice president
of DLJ's space and satellite finance group.
Therein lies a conundrum because high-yield bond buyers prefer to invest
in public companies whose valuations are established and benchmarked
through the trading of stock in the open market, said Ronald E. Lepes,
managing director, global media and telecommunications, Chase Securities
Inc.
Globalstar is a bright spot on the horizon, having successfully launched four
satellites, Lehman's Bensche said.
‘‘Globalstar has been trading up as it prepares for a (commercial service
launch) in September or October because some investors believe that
Iridium's woes are to Globalstar's benefit,'' said Thomas W. Watts, vice
president of global securities research and economics for Merrill Lynch
and Co. That is good news for Globalstar because it must raise an
additional $600 million by September, he said.
However, market participants and observers offered conflicting views
about whether at least one or two satellite companies would be able to go
public by year's end.
‘‘There will be no new IPOs this year, and there is less than a 50-percent
chance of a non-recourse debt financing,'' Bensche said.
Macroeconomic conditions rather than issues related to the specific
industry sector will be the deciding factor in whether satellite firms will be
able to tap the public equity markets as first-timers, said Carol Goldstein,
managing director and co-head of ING Baring's telecommunications
group. She said she expects to see at least a few satellite IPOs by the end
of the year.
‘‘I am relatively and cautiously positive and believe we will see one or two
IPOs,'' said Richard Heald, managing director of ABN AMRO
Rothschild.
For the first six months of this year, there have been four public
transactions altogether in this sector, $615 million in secondary equities
and $350 million in convertible securities, said Davidson of DLJ.
‘‘We will see one, if not two, IPOs by year-end,'' he said.
‘‘If not, I'll be out of a job.''
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