Moody's cuts Iridium LLC snr debt, may cut further
Friday May 14, 3:20 pm Eastern Time
( PRESS RELEASE PROVIDED BY MOODY'S INVESTORS SERVICE )
NEW YORK, May 14 - Moody's Investors Service lowered the rating of Iridium LLC from
B3 to Caa3. This ratings applies to the four series of Senior Notes totalling $1.45 billion all
due July 2005.
The downgrade is prompted by the news that Iridium has hired Donaldson, Lufkin &
Jenrette to help restructure the company's debt.
The ratings remain on review for possible further downgrade pending the outcome of the restructuring.
The Iridium project has always faced extraordinary execution risk and questions regarding the amount of demand for its
service.
At this point, it remains unclear how much the current lack of demand is attributable to poor execution, high prices, or poor
service quality.
The current management and financial turmoil at Iridium have distracted the company from addressing these issues. The
company continues to be in negotiations with its secured bank lenders regarding covenants contained in their $800 million
secured credit facility.
The company is currently operating under two month waiver (from March 31 to May 31) of compliance with the minimum
revenue and subscriber covenants of its bank credit.
It now appears that Iridium will likely have to ask to extend this waiver. Moody's has been concerned with the delay Iridium
has experienced in reformulating its business plan in light of the slow subscriber growth, a problem that was exacerbated by the
resignation of the CFO and CEO.
Iridium has been suffering for a very slow subscriber uptake for its mobile satellite telephony service, with just over 10,000
subscribers worldwide at March 31.
In light of this slower growth, Iridium must address its cost structure in order to maintain liquidity and to be able to reduce the
price of its service offering to stimulate demand. Iridium's single most significant funding requirement is a five-year Operating &
Maintenance contract with Motorola.
Annual payments under this contract grow from $537 million in 1999 to over $625 million in 2003. After this, Iridium second
largest cost component is for debt service, close to $400 million estimated for 1999.
Moody's expects that Motorola will agree to restructure the O&M contract, and the company is now taking the further step of
seeking to restructure its debt obligations.
While the resolution of these restructurings should lower Iridium's cost structure, the depth of demand for its satellite telephone
service offering remains unproven.
Headquartered in Washington, DC, Iridium is a global satellite telecommunications company.
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