August 4, 1999 (wsj.com/section A3)
Motorola's Iridium Venture Suffers
Another Setback With Chase Move
By LESLIE CAULEY and NICOLE HARRIS
Staff Reporters of THE WALL STREET JOURNAL
CHICAGO -- Chase Manhattan Corp. told Motorola Inc. that it must guarantee $300 million of an existing $800 million syndicated loan for Iridium LLC, the Motorola-backed satellite-phone venture, marking yet another setback for the satellite project.
In a filing with the U.S. Securities and Exchange Commission, Iridium said it had received a copy of a letter, dated July 29, sent by Chase to Motorola. The letter, according to Iridium, claimed that "an event of default has occurred" under the credit agreement between Iridium and its lenders, led by Chase, prompting last week's missive.
Iridium Is Slashing Its Ad Budget as Phones Encounter Problems (July 26)
Bankruptcy-Court Filing by Iridium Isn't Realistic Option, Says Official (July 19)
Iridium Misses Interest Payment; Lockheed Won't Add More Funds (July 16)
Motorola Outlines Grim Options for Struggling Iridium Venture (July 15)
Company Profile: Motorola
In its filing, Iridium said Chase concluded that a "triggering" event under the credit agreement had been tripped, requiring Iridium "to demand that Motorola provide a guarantee of $300 million of Iridium's borrowings." Iridium said Chase also concluded that Iridium had failed to make that request to Motorola in a timely manner.
Iridium, in the same filing, denied that it had slipped into default. "Iridium and Motorola believe that no 'triggering' event" has occurred, the filing said. "Accordingly, an event of default ... has not occurred." Some analysts called Chase's action an attempt to turn up the heat on Iridium. "Chase is putting pressure on debt holders to come to an agreement," said Armand Musey, an analyst with Banc of America Securities. "This is setting the stage for full-blown foreclosure, which would force them into bankruptcy." That is something that Iridium's investors want to avoid, Mr. Musey added.
Chase's accusation has serious implications. If Iridium defaulted on its $800 million loan, it would default on another $750 million credit agreement that has previously been guaranteed by Motorola. And if lenders decided to accelerate loans as a result of default, Iridium noted, it would also be in default on an additional $1.45 billion in senior notes.
All three companies declined to elaborate on statements in the filing or the Chase letter. Chase declined to make its letter available for review or to say what "triggering" event it was referring to. It is also not clear how the question of whether Iridium is in default will be resolved.
A Chase spokesman said those types of disagreements are handled "in many different ways," depending on the situation, but didn't elaborate.
The timing of the Chase letter couldn't have been worse for Iridium, which is in the midst of trying to restructure. The venture recently said it planned to exercise its right to extend the payment date for $90 million in interest on its high-yield bonds. That heightened concern that Iridium would miss the payment altogether and might have to file for bankruptcy protection from creditors. Iridium said restructuring talks are proceeding well.
Motorola, Iridium's biggest investor with an 18% stake, has already said the satellite-phone concern may have to be shut down in bankruptcy-court proceedings because of huge losses, unless its investors can agree on a restructuring plan.
The Chase letter was disclosed as a Motorola-hosted conference for analysts was getting under way in Chicago, near Motorola's Schaumburg, Ill., headquarters. Motorola executives tried to play down the potentially dire development, to no avail.
Robert Growney, Motorola's president and chief operating officer, attempted to stick to broad statements about Iridium. He finally acknowledged that Motorola wouldn't provide additional support to Iridium beyond contractual obligations, but indicated he remains optimistic that the parties can work something out.
"We are supportive of Iridium but everyone has to step up and put in their fair share," he said. "We are in the process of having good constructive discussion with the parties and we remain optimistic... . Outside of that we won't delve into the details of any restructuring plan."
After the meeting, a few analysts cornered Chris Galvin, Motorola's chief executive officer. Asked if he regretted getting involved with Iridium, Mr. Galvin didn't miss a beat.
"No, I still think the technology has promise. We're just in a mode of getting the business model right," he replied. Iridium, which was originally conceived as a premium wireless product for global business travelers, was Motorola's idea in the first place.
Another analyst told Mr. Galvin that investors probably wouldn't mind if Motorola just walked away from the satellite-phone venture, which has cost billions to construct but so far has only attracted about 20,000 subscribers, well below the company's projections. Mr. Galvin declined to take the bait, saying only that "negotiations are sensitive at this point, and we don't want to handle it in a public forum."
Mark McKechnie, an analyst with Banc of America Securities who attended the conference, said Motorola is in a tough situation. Iridium is a customer Motorola wants to keep, "but at the same time, investors are concerned they might step up their exposure to risk," he said. "After [Tuesday's] comments, it's obvious they're keeping Iridium on a tight leash."
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