Globalstar Defaults On $250 Million Loan, Forcing Lockheed Martin To Pay Big Debt
TUESDAY, JULY 11, 2000 7:20:00 PM EST
Jul. 11, 2000 (Satellite News, Vol. 23, No. 28 via COMTEX) -- Financially troubled Globalstar L.P. [GSTRF] took the unusual step of deliberately defaulting on a $250 million bank credit line to get an additional six months of cash for its faltering satellite phone service.
The default forced Globalstar's guarantors of the $250 million credit line to repay the debt and, in return, accept Globalstar notes payable in three years.
Since the guarantees were offered in 1996, none of the guarantors could back out of the arrangement due to Globalstar's problems in achieving its sales goals since beginning service earlier this year.
The financing move gives Globalstar enough cash to operate until next spring, instead of facing a money crunch in September or October this year. The maneuvering also puts Lockheed Martin Corp. [LMT] in the unenviable role of providing $150 million of funding that might not be repaid.
Globalstar opted to draw down the $250 million line of credit from Chase Manhattan Bank in June, despite not intending to repay the money when the revolving line of credit ended June 30. The default obligated Lockheed Martin and the other guarantors to repay the bank (SN, July 3).
The question for Lockheed Martin and the other guarantors is whether the notes will be worth anything, if Globalstar follows the same path of other multibillion dollar satellite phone services, Iridium LLC and ICO Global Communications [ICOGF] and files for bankruptcy.
The wording of a June 30 news release issued by Globalstar suggests that Lockheed Martin provided $150 million of the financing reluctantly. Lockheed Martin paid $207 million of Globalstar's default, as required by a 1996 agreement with Globalstar's primary owner, Loral Space and Communications [LOR]. Loral then repaid Lockheed Martin $57 million to limit the guarantor's liability to $150 million, in accordance with the 1996 agreement.
The $250 million Chase credit facility called for the guarantors of the credit line to receive warrants for Globalstar common stock in consideration of their guarantee. Under the terms of the agreement, the $250 million credit line was replaced June 30 by "pay-in-kind" Globalstar notes due 2003.
As a result of this transaction, Globalstar expects that it will end the year with a surplus of approximately $90 million in cash, plus the revenues generated from operations, company officials said.
Otherwise, Globalstar was facing a $160 million financing shortfall by year-end, company officials added.
"As we have previously noted, Globalstar has sufficient funds on hand to continue marketing its service," said Bernard Schwartz, chairman and CEO of Globalstar and Loral.
Aside from Lockheed Martin, the guarantors of the facility were Qualcomm Inc. [QCOM], DASA and Loral Space & Communications. Globalstar officials said that they believe that issuing the three-year notes satisfies the company's obligations to the guarantors, but Lockheed Martin publicly disagreed.
Globalstar and Lockheed are engaged in discussions with a view to resolving this disagreement, Loral officials said.
"The deal was negotiated in 1996," Mac Jeffery, a Loral spokesman, told SATELLITE NEWS Senior Analyst Paul Dykewicz in a July 5 phone interview. "Everybody walked into it with their eyes open."
Lockheed Martin's view was somewhat adversarial. "Lockheed Martin is entitled to repayment by Globalstar of the amounts paid under the guarantee and has not yet reached agreement with respect to the form and timing of repayment," the company said.
Lockheed Martin officials said their company also is evaluating the need for any pretax, nonrecurring charge against earnings in second quarter 2000, but no determination has been made yet.
Qualcomm is a guarantor of the Chase loan to Globalstar for $22.5 million," said Julie Cunningham, who heads Qualcomm's investor relations. "That amount is not material to the company which is why we did not issue a news release. Any additional information would be included in our next 10-Q filing after our July 19, 2000 earnings release."
In addition, the 200 jobs cut by Qualcomm at the end of June affected all lines of its business, not just the company's sale of Globalstar service, Cunningham said. The reduction involved less than 3 percent of Qualcomm's 7,000 employees.
Loral guaranteed repayment of $68 million, while DASA only was on the hook for $10 million, according to Globalstar financial documents filed with the Securities and Exchange Commission (SEC).
Globalstar, led by founding partner Loral Space & Communications, is a partnership of the major telecommunications service providers and equipment manufacturers worldwide. The other partners include: Alenia, China Telecom (HK), Dacom, DaimlerChrysler Aerospace, Elsacom (a Finmeccanica company), Hyundai, TE.SA.M (a France Telecom/Alcatel company), Space Systems/Loral and Vodafone AirTouch.
Globalstar Partners To the Rescue
* Lockheed Martin - $150 Million * Loral Space - $ 68 Million * Qualcomm - $ 22 Million
* DASA - $ 10 Million Source: Globalstar
Copyright Phillips Publishing, Inc.
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