Reuters-Iridium has waiver on credit pact, CFO quits
By Jessica Hall
NEW YORK, March 29 (Reuters) - Global satellite telecommunications company Iridium LLC (Nasdaq:IRID - news) said on Monday its chief financial officer resigned and it received a two-month extension from its lenders to prove it can meet certain revenue and subscriber targets.
Shares of Iridium closed at $19.94, down $1.69 or 8 percent. Iridium's stock has fallen 73 percent since its 52-week high last May.
Iridium said earlier this month its first-quarter financial results and subscriber levels would fall short of expectations due to slow production and distribution of phones by suppliers, quality problems with certain phone handsets, and poor marketing efforts by its regional affiliates.
The latest announcement that Iridium's CFO Roy Grant will leave April 16 sparked concerns that the company's problems may run deeper than just distribution woes, analysts said.
''It's a bit of instability at a time when they need to be getting more stable...it does not help investor confidence to see this,'' said one financial analyst who declined to be named.
Iridium said Grant is leaving for personal reasons and it expects to name a replacement by the time of his departure. Grant could not be immediately reached for comment.
Iridium also gained a two-month extension to meet its growth targets. Under the waiver, Iridium must have $4 million in cash revenues, $30 million in cumulative accrued revenues and at least 52,000 customers by May 31.
Iridium will default on its loans if it fails to meet those targets.
Iridium, which had 3,000 subscribers at the end of 1998, said it is revising its revenue and customer targets and it plans to request a change in the terms of the loan requirements.
''I'd expect drastic reductions in the subscriber and revenue targets,'' said SoundView Financial Group analyst Timothy O'Neil.
O'Neil recently cut his first quarter subscriber forecast to 9,000 from 25,000 and the full year 1999 subscriber forecast to 115,000 from 339,000. He does not expect Iridium to show significant subscriber gains until at least the third quarter of 1999.
Analysts said they expect Iridium's lenders will renegotiate the terms of the loans, but they may look for additional financial commitment from Motorola Inc. (NYSE:MOT - news), which owns 20 percent of Iridium.
Motorola spokesman David Rudd declined to comment on whether it would provide Iridium with more financial support. Rudd, however, said the company stood by comments Motorola President Bob Growney made last week in an interview with the Financial Times newspaper.
Growney told the FT ''there's no chance of Iridium going under.''
Other members of the consortium behind Iridium include Sprint Corp. (NYSE:FON - news), Raytheon Co. (NYSE:RTNa - news), Lockheed Martin Corp. (NYSE:LMT - news) and Pacific Electric Wire & Cable Co. Ltd. .
Iridium, which has a network of 66 satellites that enable calls to be made virtually anywhere in the world, launched its service in November after a five-week delay.
Iridium faces several challenges going forward, including renegotiating the terms of its credit agreement, improving its sales and distribution operations and simplifying its pricing plans, analysts said.
''I still see light at the end of the tunnel, it's just a longer tunnel and the light's not as bright,'' O'Neil said.
Iridium also may land a contract with the U.S. government to provide phones to the Amry, Navy, Airforce and Marines, but the Defense Department still needs security features on the phone service before it can fully adopt it, analysts said.
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