SELL SIGNALS UPDATE: Why Iridium Shares Could Become Worthless
iionline.com
Director of Online Research: Dave Sterman (5/14/99)
Don't say you weren't warned.
On three previous occasions we unabashedly warned you to run away from
Iridium (NASDAQ: IRID - Quotes, News, Boards) –
and each time the stock headed even lower.
February 2nd: 'SELL SIGNALS: Iridium Falling From the Sky.'
April 5th: 'SELL SIGNALS UPDATE: Iridium's Nightmare to Worsen.'
April 23rd: 'SELL SIGNALS UPDATE: Iridium is Going, Going ......'
At a recent $10.81, Iridium's stock is down 66% since we first recommended
shorting it. With each passing month, the company has been delivering increasingly
bleak news. From top management defections to technical glitches to missed subscriber
targets, the global wireless phone provider has been a maelstrom of bad news.
The latest dose of bad news has sent the shares crashing through the $10 barrier
(though the shares have rebounded to $11 in late morning trading). The latest dose of
misery: Iridium will not be able to satisfy its debtholders by the end of this month. By
May 31, Iridium needed to convince its lenders that it had a viable strategy to pay off
its mounting debt load. It won't.
Though the news sent the company's shares down, bondholders took an even deeper hit.
Iridium's 14% 2005 bonds tumbled 200 basis points and now trade at just $0.18 on the
dollar. But bondholders may soon be in a better mood.
Ticking Death Clock
That's because the death clock on Iridium's equity has started ticking. Simply put,
they now have little recourse to further funding. And without more money, they can't
even complete their capital expenditure program, let alone make good with their bondholders.
As a result, Iridium's lenders will soon take control of the company. And when that happens,
the equity will be worth less than the paper it's printed on.
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