CREDIT SUISSE FIRST BOSTON CORPORATION
Iridium SELL
Iridium Files for Voluntary Chapter 11 Bankruptcy
ú On an earlier conference call, CEO John Richardson had stated that
bankruptcy was not a viable option for Iridium; however, on August 13,
Iridium put out its own press release stating that it had made its own
voluntary Chapter 11 filing.
ú Iridium held a conference call, but could not provide significant detail on
the pending restructuring plan.
ú The company has a difficult road ahead, and there is obviously turmoil
among some of the creditors. Further, we believe in order to get a suc-cessful
restructuring completed, it is very likely that the present equity
holders will wind up with very little value.
Investment Summary
. Despite CEO John Richardson?s statement on the most recent
conference call that bankruptcy was not a viable option for Iridium, Iridium put out
its own press release stating that it had made its own voluntary Chapter 11 filing.
Although Richardson mentioned during the late-day August 13 conference call
that Iridium had scheduled a board meeting and had anticipated filing a voluntary
Chapter 11, we believe Iridium may have been pressured by the perception of the
involuntary filing, subsequently deciding to file its own voluntary Chapter 11.
Richardson stated he was surprised by the noteholders? actions and did not know
why they had felt the need to file an involuntary petition.
Richardson would not comment on subscriber levels or business plan specifics,
and we have to admit we thought it was kind of absurd that many of the questions
on the late- day conference call revolved around subscriber levels, pricing, and
forecasts for 2002 given the situation at hand. While the company reported that
Motorola and Nippon Iridium are committed to supporting Iridium and that it will
be ?business as usual,? it seems to us that it is wildly naive to think that a com-pany
that was planning to rely on large government and corporate business or-ders
is now going to be able to generate increased sales in bankruptcy. Along
with the particularly negative international perception of bankruptcy, this is why
we believe Richardson said it was not really an option for Iridium on the last call.
We just think this time the company had no choice.
Additionally, while it may be a different story for the debtholders, even if Motorola
and the other creditors and equity investors put in more capital to get the com-pany
through a successful restructuring, current public equity investors should not
take this as a sign that this is a wonderful event for Iridium. In most bankruptcy
restructurings, the debtholders usually wind up with most if not all of the value of
the company. We were very surprised last week when Iridium stock seemed to
react positively to an article in the Wall Street Journal that talked of vulture in-vestors
buying up the bonds. This generally happens when the situation is such
that the person buying up the bonds may believe that the equity will get wiped out
and that the vulture investor will wind up getting some part of the equity in the
restructuring.
No matter how one looks at this, Iridium has a difficult road ahead of it. The com-pany
would not offer a great deal of detail on the restructuring plan, but said it
estimated that it might need $400-600 million to get it to the point where it could
successfully relaunch product sales. However, our concern has always been the
following: Even if Iridium makes it through the near term, what happens in a cou-ple
of years when the existing satellite constellation must be replaced? This has
to be on the minds of the existing creditors, service providers, and equity holders.
Obviously, it is to everyone?s benefit now to support a restructuring. In liquidation,
we believe that the main assets would be Iridium?s spectrum and orbital slots?no
one else is building a network like Iridium?s (every other network either up or
contemplated is bent pipe). In any case, the satellites have a limited time up
there. Unless one considers the longer term, where is the company in a few
years? We do not know if the creditors and service providers will want that kind of
future responsibility.
Additionally, while it may be a different story for the debtholders, even if Motorola
and the other creditors and equity investors put in more capital to get the com-pany
through a successful restructuring, current public equity investors should not
take this as a sign that this is a wonderful event for Iridium. In most bankruptcy
restructurings, the debtholders usually wind up with most if not all of the value of
the company. We were very surprised last week when Iridium stock seemed to
react positively to an article in the Wall Street Journal that talked of vulture in-vestors
buying up the bonds. This generally happens when the situation is such
that the person buying up the bonds may believe that the equity will get wiped out
and that the vulture investor will wind up getting some part of the equity in the
restructuring.
No matter how one looks at this, Iridium has a difficult road ahead of it. The com-pany
would not offer a great deal of detail on the restructuring plan, but said it
estimated that it might need $400-600 million to get it to the point where it could
successfully relaunch product sales. However, our concern has always been the
following: Even if Iridium makes it through the near term, what happens in a cou-ple
of years when the existing satellite constellation must be replaced? This has
to be on the minds of the existing creditors, service providers, and equity holders.
Obviously, it is to everyone?s benefit now to support a restructuring. In liquidation,
we believe that the main assets would be Iridium?s spectrum and orbital slots?no
one else is building a network like Iridium?s (every other network either up or
contemplated is bent pipe). In any case, the satellites have a limited time up
there. Unless one considers the longer term, where is the company in a few
years? We do not know if the creditors and service providers will want that kind of
future responsibility.
Additionally, while it may be a different story for the debtholders, even if Motorola
and the other creditors and equity investors put in more capital to get the com-pany
through a successful restructuring, current public equity investors should not
take this as a sign that this is a wonderful event for Iridium. In most bankruptcy
restructurings, the debtholders usually wind up with most if not all of the value of
the company. We were very surprised last week when Iridium stock seemed to
react positively to an article in the Wall Street Journal that talked of vulture in-vestors
buying up the bonds. This generally happens when the situation is such
that the person buying up the bonds may believe that the equity will get wiped out
and that the vulture investor will wind up getting some part of the equity in the
restructuring.
No matter how one looks at this, Iridium has a difficult road ahead of it. The com-pany
would not offer a great deal of detail on the restructuring plan, but said it
estimated that it might need $400-600 million to get it to the point where it could
successfully relaunch product sales. However, our concern has always been the
following: Even if Iridium makes it through the near term, what happens in a cou-ple
of years when the existing satellite constellation must be replaced? This has
to be on the minds of the existing creditors, service providers, and equity holders.
Obviously, it is to everyone?s benefit now to support a restructuring. In liquidation,
we believe that the main assets would be Iridium?s spectrum and orbital slots?no
one else is building a network like Iridium?s (every other network either up or
contemplated is bent pipe). In any case, the satellites have a limited time up
there. Unless one considers the longer term, where is the company in a few
years? We do not know if the creditors and service providers will want that kind of
future responsibility. |
