Iridium offers investors equity as repayment
August 20, 1999
By Antony Bruno
According to a U.S. Securities and Exchange Commission report filed last
week, the recently bankrupt Iridium L.L.C. said it proposed offering
bondholders and other creditors an equity stake in the company in lieu of
cash.
Iridium filed for Chapter 11 bankruptcy protection Aug. 13, after
defaulting on $1.5 billion in loans.
Under the financial restructuring plan, Iridium would pay its obligation to
holders of $1.45 billion in bonds and other debt with a one-third equity
stake in the company. Motorola Inc., Iridium?s largest investor at 18
percent, would receive another 12-percent equity stake in return for $500
million of unsecured debt.
The downside of the plan is that the equity given creditors will dilute the
equity stakes held by current investors. Exactly how much dilution will
occur is not clear. Should the plan be approved, bondholders collectively
would own about 33 percent of the company, and Motorola at least 12
percent.
In the restructuring plan, Iridium asks current investors to contribute
another $500 million to help pay for operations throughout the year.
Should they concede, investors would find their equity interest rise. If they
don?t contribute, their equity stake would remain diminished.
Additionally, the plan calls for Motorola to defer to a later date $400
million in payments due toward the $2.8 billion, five-year vendor contract
between the two companies. Iridium?s banks also are asked to defer the
maturity of their loan to an unspecified date. At present, Iridium?s $800
million senior secured bank facility matures in 2000, and its $750 million
loan guaranteed by Motorola matures in 2001.
While parent company Motorola reportedly has approved the plan,
bondholders continue to review it. Company spokeswoman Michelle Lyle
said Iridium continues to hope the restructuring negotiations will be
completed in less than a month.
In the filing, Iridium stressed the plan was presented to creditors before it
filed for bankruptcy, and that status may cause details of the plan to
change.
The exact nature of Iridium?s financial woes were somewhat revealed in
another SEC filing, this time disclosing the company would not be able to
file second-quarter earnings results on time. While exact figures were not
forthcoming, Iridium said it expected the second-quarter net loss to be
significantly more than the $1.07 billion combined net losses reported by
its various business entities after the first quarter. At that time, Iridium
World Communica-tions Ltd. listed a net loss of $60.4 million; Iridium
L.L.C. a net loss of 507.1 million; and Iridium Operating L.L.C. a net loss
of $505.3 million.
Meanwhile, since the bankruptcy, Iridium?s gateway providers in Asia, the
Middle East and the United States made assurances their respective
businesses were in good financial shape. Iridium North America, in fact,
claimed recent price cuts have spurred a 25-percent boost in subscribers
in the last six weeks. Additionally, Iridium?s partners in Mexico have
begun selling the service there, considered a potentially large market for
the satellite phone service.
The gateway providers own the physical ground stations used to link the
satellite constellation with terrestrial networks.
Iridium has yet to disclose the number of users on its system to date.
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August 21, 1999
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