Iridium Bondholders, Motorola Narrow Bailout-Plan Gap
Washington, Aug. 6 (Bloomberg) -- Motorola Inc., the largest investor in cash-strapped Iridium LLC, has proposed a second restructuring plan for the global satellite-telephone company that is closer to what Iridium bondholders are seeking, investors familiar with the negotiations said.
Motorola's latest proposal calls for the bondholders to swap two thirds of their securities for new debt convertible into common stock that represents an equity stake of about 44 percent, the people said. Motorola, which currently owns 18 percent of Iridium and has promised it financial guarantees of $2.2 billion, would have a 25 percent stake in return for guaranteeing another $400 million to ease Iridium's dwindling cash reserves.
The rest would be owned by investors and shareholders of Iridium World Communications, Ltd., the publicly traded arm of Iridium. Their stake in the company would be diluted to about 4 percent from 14 percent.
Motorola couldn't be immediately reached for comment. Iridium declined to acknowledge the plan or comment on any details, although a spokeswoman said discussions are continuing and are progressing. It wasn't clear how the bondholders' proposal and Motorola's revised proposal differed.
Iridium has until Wednesday to reorganize its debt and avoid defaulting on an $800 million syndicated bank loan and the likelihood of a court-imposed bankruptcy filing. The lead lender in that loan, Chase Manhattan Corp., already has declared the loan in technical default. Iridium also must make an interest payment of $90 million on $1.45 billion in bonds by Aug. 15.
''The conversion of two thirds eliminates a great cash burn for the company, which was much needed relief,'' said Romeo Reyes, an analyst of high-yield telecommunications-company debt at Jefferies & Co. ''The $400 million in equity is obviously a huge positive.''
Bridging a Gap
The Motorola plan, like the bondholders offer, is predicated upon the additional $400 million. Nippon Iridium, a group that includes DDI Corp., Kyocera Corp., Sony Corp., banks and other cellular-phone companies, as well as Veba AG's Vebacom Holdings Inc. and other cash-rich investors in Iridium, are willing to contribute to a good portion of the $400 million, one investor familiar with the plan said.
Iridium's telephones offer global communications through a constellation of 66 satellites. They failed to lure many customers, however, which critics blamed on the cost of the phone and the service, as well as the phone's unwieldy, brick-shaped size.
It has since made drastic cuts in pricing and set its sights on subscriber and revenue targets more realistic than those initially promised to creditors.
Starting Point
''This is a very good starting point,'' said Merrill Lynch analyst Tom Watts, who has a ''neutral'' rating on the stock. ''This gives them operating cash. It also gives them breathing room through 2000 to prove their business plan.''
Service payments on the remaining one third of the total debt will be made with cash or common stock. In addition, future interest payments on the convertible bonds will be paid in common stock at a slight discount to the market or payments in kind, the investors said.
Motorola has agreed to defer receipt of about $500 million from Iridium under the operations-and-maintenance contract, the investors said. Motorola would agree to the bondholders' proposal that two thirds of the $500 million be exchanged for debt convertible into common stock, the investors said. It's not clear how the other third of the contract will be settled. The operations and maintenance contract would continue to be deferred until 2000 at the earliest.
Iridium's 14 percent bonds due 2005 traded at 22 cents on the dollar, up two points from yesterday and down about 77 percent this year. Shares of Iridium World rose 5/32 to 6 1/8. They've lost 85 percent or their value in the past year.
Motorola rose 3/4 to 88 3/4.
Aug/06/1999 18:12
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