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Globalstar Will Enter Bankruptcy To Save Satellite Phone Business
By SAM SILVERSTEIN, Space News Staff Writer
posted: 06:19 pm ET, 13 November 2001
WASHINGTON — Globalstar LP plans to enter bankruptcy within weeks in an effort to wipe out its multibillion-dollar debt load and keep its global satellite phone business in operation, according to company officials.
Globalstar and its creditors are nearing a settlement under which Globalstar’s debt will be converted into equity via a reorganization under Chapter 11 of the U.S. bankruptcy code, said Mac Jeffery, a Globalstar spokesman. Plans call for a new, debt-free Globalstar company to emerge, he said.
The plan follows months of negotiations between Globalstar, San Jose, Calif., and bondholders which funded the company and have not been paid since the beginning of 2001, when Globalstar unilaterally suspended repaying its debts in an effort to conserve cash.
"We’ll go into Chapter 11, we’ll come out of Chapter 11, and there will be a new Globalstar company," Jeffery said. "We are still hopeful we can maintain control of our own destiny."
Globalstar began commercial service in early 2000, but ran into financial difficulty when subscribers failed to materialize as fast as company officials had projected. Globalstar’s bankruptcy would follow the bankruptcy in 1999 of Iridium LLC, which entered the mobile satellite phone business in 1998 and also sank under a multibillion-dollar debt load.
According to a Globalstar statement, the reorganization plan would lead to the severe dilution of existing ownership interests in the Globalstar partnership, meaning owners of Globalstar stock are likely to see their shares lose most or all of their value. Globalstar shares are currently traded on the Nasdaq small-cap exchange.
As part of the reorganization, some Globalstar service providers that now are owned separately will become part of the mobile satellite company. Jeffery said the change would simplify Globalstar’s operations and allow the company to control aspects of its service other than selling minutes at wholesale.
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