*WSJ Front Page. Iridium Will Miss Interest Payment; Lockheed Won't Add More Funds
July 16, 1999
By SCOTT THURM
Staff Reporter of THE WALL STREET JOURNAL
Iridium LLC said it will miss a $90 million interest payment on bonds, and
at least one Iridium investor, Lockheed Martin Corp., said it doesn't plan
to contribute additional funds to the satellite-phone venture.
The news came a day after Motorola Inc.,
Iridium's largest investor, said the project may
have to be shut down in bankruptcy-law
proceedings because of huge losses unless its
investors can agree on a restructuring plan.
Iridium said Thursday that it will miss the
payment on $1.45 billion of outstanding bonds
to give it time to develop a restructuring plan
with creditors and investors. "It takes time to
reach consensus among the players in any
restructuring effort," said John Richardson,
Iridium's chief executive, in a statement. Mr.
Richardson said a one-month grace period
before bondholders can hold Iridium in default
"gives us time to concentrate on reaching a suitable arrangement for the
ongoing commercial operation of this company."
The missed payment and snub from Lockheed Martin heightened the
prospect that Iridium would have to file for Chapter 11 protection from
creditors, at least as a way to achieve a much-needed financial
restructuring. An official of Motorola first raised the bankruptcy possibility
on Wednesday.
'Pre-Packaged' Filing
Analysts said Iridium and its backers likely will seek a "pre-packaged"
bankruptcy filing as part of a financial restructuring, in which bond holders
agree to defer interest payments in exchange for an equity stake in the
company. Bankruptcy under Chapter 11 makes it easier to accomplish a
restructuring because every bondholder wouldn't have to agree to the plan.
Iridium has about a month to reach at least the outlines of a deal. Iridium's
bankers, who supplied the company with an $800 million line of credit,
have given Iridium until Aug. 11 to come up with a restructuring plan.
Iridium violated the terms of the credit line when it didn't meet targets for
customers and revenues. The service, which expected to add 50,000
subscribers a month this year, gained fewer than 11,000 new subscribers
in the first three months of the year.
"These guys are going to spend the next 30 days trying to work on this
financial restructuring," said Phelps Hoyt, an analyst for KDP Investment
Advisers, Montpelier, Vt. Mr. Hoyt said it's unlikely that a deal will be
finalized by Aug. 11, but that the banks and bondholders would delay
pushing Iridium into bankruptcy involuntarily if a deal appears likely.
New Infusion of Cash
But Mr. Hoyt thinks Iridium also needs new infusions of cash from its
shareholders; Motorola is believed to be asking others to contribute. But a
spokesman for Lockheed, which built the satellite components and owns
1% of Iridium, said the company "does not anticipate a future investment in
Iridium and [has] no investment options under consideration."
Lockheed's comments are significant because it is widely believed that all
-- or the vast majority -- of Iridium's financial backers will have to
participate in a restructuring if it is to be successful.
"If one guy gets his leg cut and the other guys all walk with two legs, that's
not fair," said Maurice Rompre, chief executive of Iridium Canada, one of
the "gateway" partners that helps complete calls. "If everyone gets their leg
cut, that's fair."
A half-dozen other Iridium shareholders declined to comment on the
service's troubles or their willingness to contribute additional funds.
"The development in the marketplace has not been what we anticipated,"
said a spokeswoman for Veba AG of Germany, part owner of an Iridium
partner that owns 8.8% of the company. "But before we decide anything
we want to see first what the new management can do, whether it can give
Iridium another boost."
Iridium last month slashed prices on both the special phones to use the
service and the per-minute charges. But investors and analysts said it is too
soon to determine if the lower prices are stirring subscriber interest.
Amid the swirl of events, Iridium's stock, which has fallen more than 90%
from its highs last year, rose 50 cents, or 7.4%, to $7.25, in Nasdaq
Stock Market trading Thursday.
For now, however, much of the attention is on Iridium's bonds, which fell
Thursday. They are now trading at roughly 20 cents on the dollar.
--William Boston and Peter Landers contributed to this article.
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