This is a copy of a post from the Iridium thread regarding today's Barrons article on Iridium.
From: Goodboy Saturday, Apr 3 1999 3:51PM ET
Reply # of 1514
Barrons did a short article on Iridium and pointed out both the bank loans and bonds are trading at default levels. This suggests that equity is worthless (duh!). Article says Iridium stock should be trading at pennies on the dollar (duh!). What she forgot to put in the article is that the bank debt is being priced by sophisticated and experienced investors and traders who understand the financial structure of Iridium and the bankruptcy process. Same goes for the high yield crowd. As for the Iridium equity, every single large investor has dumped all their stock. Several institutions have put on short positions.
Iridium stock is now in the hands of retail investors who fail to see that the equity is within 6 months or less from being wiped out in a restructuring. Iridium is and has been toast. Forget their deal with the military, the potential for several major contracts with corporations or whatever PR or deal announcements they can come up with. This baby is dead (not the service, just the equity value).
This is a classic blow up and it is following the game plan to a tee: Too much debt, poor business model, high cost provider/producer, poor managment, poor business plan execution, tough competition coming on line, growth-revenue-sales targets are missed, company violates a bank or debt covenant, CFO sells stock and then resigns, company trys to renegotiate coventants to buy more time.
What's up next: Cash crunch, need for more capital prompts Motorola to say that they won't let service die, but they want a restructuring before they will put in more money, CEO or other officers resign, subscriber growth beyond the goverment agency or military remains poor.
The end of the story is this: Equity - 0, Bank debt - 90 cents on the dollar and new interest rate (maybe worse, but they get equity plus warrents in the new Iridium), Bonds - .20 to .40 cents on the dollar in new debt plus new Iridium common stock or warrants on the common, Motorola - ends up with 40 percent or more of the equity plus new debt securities along with warrants. Motorola will also benefit via future payments on the master services agreement.
Iridium equity is a zero. Wait until summer and buy the hell out of Globalstar at lower levels then today and you will make back your lost money. This was the wrong horse.
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