Qualcomm Takes Lead in Proposed Globalstar Bailout
By Peter B. de Selding
Space News Staff Writer
posted: 09:57 am ET
07 May 2001
PARIS — A group of investors led by Qualcomm Inc. has agreed to throw a $500 million lifeline to the troubled Globalstar satellite-telephone project on condition that Globalstar wipe out its debts by filing for bankruptcy under Chapter 11 of U.S. bankruptcy laws, according to industry officials.
The offer comes in the midst of a four-month hunt for solutions to save Globalstar by the Blackstone Group, which was hired by Globalstar to investigate restructuring and other options to keep the debt-ridden company afloat.
Addressing Globalstar service providers May 3 in San Diego, Calif., Blackstone officials laid out a rescue option that included what Blackstone officials presented as a promise of $250 million from San Diego-based Qualcomm, which is a substantial Globalstar investor, equipment supplier and creditor. Another $250 million has been tentatively committed by a group of other companies, officials said.
One official said the funding offer would take several weeks to finalize and would be forthcoming only if certain conditions were met. Globalstar then would file for Chapter 11 bankruptcy, a procedure that involves putting its fate in the hands of a judge.
Globalstar spokesman Mac Jeffery declined to comment on the Qualcomm-led bailout in a May 4 interview. But Jeffery said the Blackstone work had led to an agreement that "restructuring options are moving forward, and we are continuing to study those options."
Qualcomm spokeswoman Bertha Agia said May 4 that the company would have no comment on the Globalstar situation.
Under U.S. bankruptcy law, judges have the ability to free a company from its debt and reduce to near zero the claims for payment by a company’s bondholders. In return, these bondholders may be given the option of owning stock in the reorganized Globalstar.
The judge also would look for new financing and select the offer considered most likely to return the company to operational status.
"For Globalstar the alternative would be to auction off its assets after a bankruptcy, and as we have seen with other satellite constellations, these assets may be worth very little," said one industry official, referring to the bankruptcy filings of Iridium LLC of Washington and ICO Global Communications of London. Iridium, a competing satellite-telephone constellation, emerged from bankruptcy after new investors paid some $25 million for a constellation that cost around $5 billion. ICO, now called New ICO, has also emerged from bankruptcy following an infusion of fresh cash by new investors.
Another industry official said there was still some hope that Globalstar could avoid a bankruptcy filing by choosing some other restructuring option.
As of Dec. 31, Globalstar had just $197 million in cash and cash equivalents. It planned to spend nearly $200 million on its operations this year and was facing heavy debt-payment obligations. With only 31,000 subscribers after a year in operation, and just $3.7 million in net revenue for the year, it was facing default. On Jan. 16, Globalstar announced it would no longer be paying principal or interest on its debt, nor would it be paying its contractors or bondholders.
Qualcomm was among the hardest hit by the Globalstar decision. Globalstar had been scheduled to make a $22 million payment to Qualcomm Jan. 15. That payment was not made. On Jan. 16, Qualcomm announced that its total exposure to Globalstar, including receivables, inventory and other assets, was $610 million. Qualcomm Chairman Irwin M. Jacobs nonetheless said at that time that new Globalstar services, including higher-speed data modules in addition to the voice service, "should open further data applications and vertical markets for the Globalstar system."
Qualcomm has a 6.3 percent interest in Globalstar.
After more than a year of commercial service from its 48-satellite constellation in low Earth orbit, Globalstar had attracted only 31,000 commercial subscribers as of the end of 2000, the company reported to the U.S. Securities and Exchange Commission in an April 2 10-K filing.
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