wsjA3 Iridium Seeks Bankruptcy Protection After Bondholders Submit Petition
August 16, 1999
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Iridium Seeks Bankruptcy Protection
After Bondholders Submit Petition
By LESLIE CAULEY
Staff Reporter of THE WALL STREET JOURNAL
Iridium LLC, the beleaguered satellite-phone venture that is backed by Motorola Inc., filed for Chapter 11 protection from creditors in a Delaware court on Friday, marking the latest in string of high-profile stumbles in the fledgling satellite-communications industry.
The filing by Washington-based Iridium was submitted just hours after bondholders submitted an "involuntary" bankruptcy petition against the venture in New York, giving the company 20 days to respond. The dueling filings set the stage for a spirited legal battle over venue, as Iridium and its long roster of creditors continue to try to agree on terms for restructuring the company.
In a conference call with reporters late Friday afternoon, John Richardson, Iridium's chief executive officer, conceded that "these are tough times for Iridium." But he added that "in time I believe, if we can survive, that we'll have a great business."
Bondholders are on the hook for about $1.45 billion. Iridium said it decided to file for bankruptcy because it wouldn't be able to meet Sunday's deadline for making a $90 million interest payment on its high-yield debt. Iridium announced about a month ago that it would exercise its right to take an extra 30 days to make the payment, heightening concern among investors that it might miss the payment altogether.
Iridium's bondholders include hedge funds, insurance companies and assorted other investors.
Shares Plunge
News of the bankruptcy filings sent shares of Iridium plunging $1.1875, or 28%, to close at $3.0625 in trading Friday on the Nasdaq Stock Exchange. Hammered by continuing management and financial woes, Iridium's stock has lost 92% of its value since the beginning of the year.
Iridium's woes have cast a pall over the emerging mobile satellite industry, which aims to provide wireless-communications service that works in far-flung corners of the world. A number of satellite ventures, including one backed by wireless pioneer Craig McCaw, are in various stages of development and will need billions in backing to launch. Most have tried to distance themselves from the problems of Iridium.
ICO Global Communications Holdings Ltd., a satellite venture based in Washington, recently got a tepid response from investors when it tried to raise $600 million, just as Iridium's financial problems were attracting attention world-wide. ICO received less than $500 million in its rights offering last month. The company said it issued no shares under the rights offering, and all funds sent by shareholders to the subscription agent were subsequently returned.
Joe Tedino, an ICO spokesman, noted that Iridium and ICO "have completely different systems." He added that investors "have to look at each of these systems individually, on their own merit."
Clay Mowry, a spokesman for the Satellite Industry Association in northern Virginia, allowed that Iridium's problems have given the industry something of a black eye. "Because Iridium has had a problem acquiring subscribers, there is a perception among investors that the marketplace is not fully developed."
Still, Mr. Mowry contends that some analysts have reacted positively to some satellite ventures more recently, notably Globalstar Telecommunications Inc., which is backed by Loral Space & Communications Ltd. "It's a matter of how these companies are telling their stories," he said.
Iridium's story, for the moment, remains troubled, and fraught with confusion. And it remains to be seen whether Iridium can stay in business long enough to turn itself around and repay anxious creditors.
Only 20,000 Users
Conceived by Motorola engineers in 1987, Iridium promised to offer wireless communications to globe-trotting business travelers. Since then, Iridium has sapped more than $5 billion in resources from investors world-wide, with little to show for it. The service, which launched last Nov. 1, to date has only managed to attract about 20,000 users, and even some observers question how many of those are giveaways. The service, meantime, has continued to be beset by a host of technical, marketing and political problems.
The Iridium network itself, however, is an engineering marvel: Motorola engineers overcame NASA-level technical problems, as well as global politics, international regulatory snafus and a range of other geopolitical issues on all seven continents to turn the satellite-phone system into reality.
The international nature of Iridium's investor and customer base ultimately could complicate its efforts to reorganize under protection of bankruptcy laws. Outside the U.S., bankruptcy is still viewed as a serious, if not fatal, financial alternative for a business. Iridium itself has previously said that it likely wouldn't be able to recover if it got hung up in bankruptcy court for a long time.
Some analysts viewed the dueling bankruptcy filings as little more than hard-ball legal maneuvering, with each side trying to get an edge on the other before bankruptcy proceedings get under way. Armand Musey, an analyst with Banc of America Securities, characterized the competing filings as "a game of chicken, where both sides are threatening to kill the baby they're fighting over."
Mr. Musey noted that none of the parties seems particularly interested in keeping Iridium tied up in bankruptcy court, especially given the international investor base of Iridium. People tracking the situation suggested that the bondholders wanted to make sure the proceeding would be handled in New York, which has a reputation for being friendly to creditors, but bankruptcy lawyers said Iridium's voluntary filings in Delaware likely would prevail. "There is a bias in favor of letting a debtor reorganize where it wants," said David Kuney, a bankruptcy lawyer in Washington with Womble, Carlyle, Sandridge & Rice.
Indeed, Mr. Richardson, the Iridium chief financial officer, said the bondholders' filing was pre-emptive, and predicted things would be worked out shortly insofar as the venue issue is concerned. As for talks with creditors, Mr. Richardson said he believed Iridium is "certainly more than 60% to 70% of the way there." He added that Iridium is "shooting for rapid conclusion of these talks" over the next 30 days.
Mr. Musey said he expects the competing bankruptcy filings to put even more pressure on Iridium and its chief backer, Motorola, to restructure more quickly. "This shows that the gloves are coming off in negotiations," Mr. Musey said. "This has become very antagonistic." Motorola, which holds an 18% stake in the venture, said in a statement that it is "encouraged" by Iridium's decision "to pursue this course for restructuring the business." The electronics giant added that it remains "optimistic" that the venture can be restructured within 30 days.
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