Iridium Shares Tumble as Bank-Loan Default Looms (Update1) (Updates with closing share price.)
Washington, May 26 (Bloomberg) -- Shares of Iridium LLC, which runs the first global
satellite-telephone network, fell 14 percent, just five days before analysts expect the troubled
company to default on $800 million in bank loans.
Iridium shares fell 1 3/16 to 7 9/16 after dropping to an all-time low of 7 earlier in the session. A year
ago, the stock traded at a record 72 3/16.
Now Iridium's future is in doubt because it hasn't sold enough of its expensive phones to meet
Monday's deadline. Its chief executive, financial chief and marketing chief all left in the past two
months. And its biggest investor, Motorola Inc., wants to see a revised business plan before adding
to the $1.67 billion in financial guarantees already pledged to Iridium. ''There's just more focus on
Iridium'' as the May 31 deadline gets closer, said J.P. Morgan analyst Marc Crossman, who has a
''hold'' rating on Iridium. ''They are going to have to get a waiver. Either that, or the banks force them
into bankruptcy, but I think that's highly unlikely at this early stage.''
Washington-based Iridium said two weeks ago it hired Donaldson, Lufkin & Jenrette Securities Corp.
to restructure its debt. Chase Manhattan Corp. and Barclays Plc are Iridium's lead commercial
bankers.
Iridium's 14 percent bonds due 2005 were little changed, trading at 20 cents on the dollar. The bonds
have been quoted at 18 cents to 22 cents in the past couple of weeks, but didn't track today's stock
decline, traders said.
Officials at Iridium and Motorola weren't immediately available for comment.
Iridium's telephones allow callers to place or take calls from practically any spot on earth through a
constellation of 66 low earth-orbit satellites and conventional cellular telephone networks.
Clunky
Analysts have criticized some Iridium phones for their unwieldy size -- almost as big as a brick -- as
well as their $3,000 price tag. Competing systems, such as the Global System for Mobile
Telecommunication, or GSM, don't cover as much of the globe, yet the phones cost $199.
Iridium also charges customers $1 to $8 per minute to use its phones, compared with less than $1 per
minute for many GSM calls.
Iridium, which is 19 percent-owned by Motorola, had debt of about $3.02 billion as of March 31. In
the event of bankruptcy, banks are the first to be repaid, bondholders are second and equity holders
are last.
Iridium so far has used about $883 million of Motorola's financial guarantees, Motorola said earlier this
month.
Motorola shares rose 2 7/16 to 81 7/16.
NYSE/AMEX delayed 20 min. NASDAQ delayed 15 min.
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