In an effort to beat djane to the punch, following is an article on the improbability of an I* bankruptcy filing, FWIW. Interesting point about the equity holders being business partners, meaning that flushing the equity could dynamite the whole business. Do I detect an air of compromise? 90-95% approval of a restructuring proposal would seem a tall order in a 30 day grace period. . .
Cheers,
Thomas
July 19, 1999
Bankruptcy-Court Filing by Iridium
Isn't Realistic Option, Says Official
By LESLIE CAULEY
Staff Reporter of THE WALL STREET JOURNAL
Leo Mondale, Iridium LLC's chief financial officer, said in an interview over the weekend that filing for bankruptcy-court protection isn't a realistic option for the global satellite-phone venture.
Mr. Mondale also predicted the project will devise a restructuring plan that offers Iridium's bondholders "an alternative to cash" well within a 30-day deadline now unfolding.
Iridium Misses Interest Payment; Lockheed Won't Add More Funds (July 16)
Motorola Outlines Grim Options for Struggling Iridium Venture (July 15)
"Our anticipation is that we will be in the market with a proposal that offers an alternative to paying cash interest on bonds before the expiration of the grace period," said Mr. Mondale.
Iridium last week said it planned to exercise its right to extend the payment date for $90 million in interest on its high-yield bonds, heightening concern that Iridium would miss the payment and might have to file for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
The news came one day after Iridium's biggest investor, Motorola Inc., said the project may have to be shut down in bankruptcy-court proceedings because of huge losses unless its investors can agree on a restructuring plan.
Mr. Mondale declined to elaborate on details of a possible restructuring but said any proposal would need to address "the overall financial structure of the business and give us some time to get revenues built up." Mr. Mondale said none of Iridium's partners, at this juncture, have been asked to contribute additional funds. He also noted that Iridium has never missed "any payment of any kind."
Armand Musey, an analyst with Banc of America Securities, said he wouldn't be surprised to see Iridium offer a proposal that allows the company as long as several years to repay cash payments on its debt or offers debtholders some form of equity in the company. To avoid a bankruptcy-court filing, Mr. Musey said Iridium needs to get 90% to 95% of its investors to agree to a restructuring plan. That might not be so difficult, he said, given that everybody "wants to avoid bankruptcy -- badly."
The $5 billion Iridium project originated with Motorola, which has an 18% stake and continues to be deeply involved, making its commentary on Iridium's predicament somewhat unusual.
A Motorola spokesman said the company decided to publicly flag the possibility of an Iridium bankruptcy-court filing because of its "obligation to shareholders." But the spokesman said Motorola remains hopeful that liquidation can be avoided.
Mr. Mondale emphasized a bankruptcy-court filing isn't a realistic alternative. Although such filings are relatively common in the U.S., they still have a significant stigma attached to them in other parts of the world. And Iridium has a large foreign investor base.
"We'd spend so much time explaining ourselves [to non-U.S. investors] that it could cost us a year's time in the market," Mr. Mondale said.
Also, equity investors, who tend to get short shrift in bankruptcy court, hold Iridium's various licensing and distribution agreements. As such, any move that undercuts them hurts Iridium. "Our investors, partners and distributors do not feel that Iridium will quickly, if ever, recover from a bankruptcy," added Mr. Mondale.
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