WashPost. Iridium's Stock Dips 28 Percent Company Can't Meet Debt Terms
By Mark Leibovich
Washington Post Staff Writer
Saturday, May 15, 1999; Page E01
Iridium LLC's stock price dropped 28 percent after the struggling pioneer
of worldwide satellite-phone service said it does not expect to meet terms
on $800 million in debt by a May 31 deadline. District-based Iridium also
said it has enlisted the New York investment bank Donaldson, Lufkin &
Jennrette Securities Corp. to help restructure its debts.
Iridium's stock dropped $4.06 1/4 to an all-time low of $10.43 3/4; about
a year ago, the company's shares were trading at $62.37 1/2.
Prices for Iridium 14 percent bonds, which come due in 2005, dropped
dramatically yesterday. Trading at prices of 23 cents on the dollar at day's
end, they have lost nearly three-fourths of their face value since February.
Iridium, which is 19 percent owned by Motorola Inc., was in arrears by
almost $3 billion in debt at the end of March. At that time, the company
secured a 60-day waiver period from its bankers to meet certain terms of
its credit line, including achieving a target of 27,000 subscribers and total
sales of $4 million by the end of this month.
But in a brief statement yesterday, Iridium said it did not expect to meet the
covenants of its waiver period. Beyond the statement, "Nobody here is
commenting," company spokeswoman Michelle Lyle said. "They're all
working on fixing our problems."
Iridium's problems are not new. In the last two months, its chief executive,
Edward Staiano, and its chief financial officer, Roy Grant, both resigned.
Iridium shares have fallen steadily as the company has made largely futile
attempts to find customers for its unwieldy-yet-state-of-the-art satellite
phones.
Iridium drew international headlines in 1990 with its plan to ring the earth
with 77 telecommunications satellites; the number later was scaled back to
66. This network of satellites would let subscribers make or receive calls
from anywhere in the world with hand-held phones.
But analyst say the company has had trouble manufacturing and distributing
the phones, and has also been slow to assemble and prepare an adequate
sales force. Analysts once had projected that Iridium would have 100,000
subscribers by the beginning of this year. But at the end of March, Iridium
had signed up 10,294 subscribers.
"Right now, they've certainly hit a new low," said Riyad Said, a
communications analyst for Friedman, Billings, Ramsey Group Inc. in
Arlington. Said was referring specifically to yesterday's announcement
about Iridium's debt covenants. He currently rates the company as a
"hold."
Still, Said said Iridium is not without long-term potential. If the company
becomes financially and operationally sound, it can market its services to
niche customers -- such as government agencies, news media companies
and oil and gas firms -- that often send people to remote parts of the
globe. These are "heavy-use" customers who tend to be relatively
insensitive to the company's high prices. Iridium phones alone cost $3,000.
Merrill Lynch & Co. analyst Tom Watts said that if Iridium can secure
financing through 2000, "it could give them a new lease on life."
By the end of the year, Watts said, Iridium is expected to announce a
next-generation phone that will be considerably lighter and, presumably,
less expensive.
"Clearly the current pricing model is not viable right now," he said.
© Copyright 1999 The Washington Post Company
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