(wsj.com)Iridium Announces It Defaulted On $800 Million in Bank Loans
August 11, 1999
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Iridium Announces It Defaulted
On $800 Million in Bank Loans
An INTERACTIVE JOURNAL News Roundup
Iridium LLC, the ailing $5 billion satellite-telephone project led by Motorola Inc., announced late Wednesday that it has defaulted on $800 million in bank loans for which it had missed earlier deadlines.
Iridium said its waiver of customer and revenue covenants under the $800 million senior secured credit facility expired Wednesday. The company said it also has defaulted on its $750 million guaranteed credit facility. Iridium said it continues to consider capital restructuring options.
The beleaguered Washington, D.C.-based satellite phone company had until the end of the day to meet targets for revenue and subscribers that are among the loan conditions. The targets were far beyond reach, and the company was in restructuring talks with creditors.
Iridium has until Sunday to pay $90 million in interest to bondholders.
The $5 billion satellite-telephone network was supposed to usher in a new age of wireless communications, letting users make cellular-phone calls from the jungles of New Guinea to the streets of Paris. But when Iridium began operations last fall, it struggled to attract customers, soon placing it in violation of its bank-loan agreements.
Last week, Chase Manhattan Corp. told Motorola that it must guarantee $300 million of an existing $800 million syndicated loan for Iridium. Robert Growney, Motorola's president and chief operating officer, 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.
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.
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.
Iridium reportedly is close to an agreement that would offer 44% of the company's equity to bondholders who have $1.45 billion of its debt. The offer reportedly follows an offer to bondholders of a 25% equity stake.
Some analysts and investors continue to regard a bankruptcy as all but inevitable and say the question is only whether it will be a pre-packaged arrangement among the parties. Others see hope that the company can work out an acceptable deal and a viable business plan.
Iridium's shares lost 37.5 cents Wednesday, or 5.9%, to close at $5.9375.
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