Globalstar loss widens, shares fall 60 pct
By Jonathan Stempel
NEW YORK, Oct 30 (Reuters) - Satellite telephone operator Globalstar Telecommunications Ltd. <GSTRF.O> stunned investors on Monday, posting surging losses with "unacceptably slow" subscriber growth in its latest quarter, as its chief financial backer, Loral Space & Communications Ltd.<LOR.N>, yanked support.
Globalstar shares plunged more than 60 percent to an all-time low and its bonds sank to trade at less than a dime on the dollar, despite reassurance from Chief Executive Officer Bernard Schwartz that the company was "not on life support."
Globalstar reported a third-quarter net loss of $97.5 million, or $1 per share, on revenue of $1.4 million. Analysts polled by First Call/Thomson Financial had on average expected a 90 cents per share loss. A year ago, Globalstar lost 20 cents per share.
Globalstar shares tumbled $3-5/8 to $2-3/8 on trading volume of more than 23 million. The 60.4 percent decline was the largest drop of Monday's session, putting the stock down 95 percent this year.
The company's "distressed" 11.25 percent notes maturing in February 2004 were bid Monday at eight cents on the dollar, down more than half from 18 cents on Friday, traders said.
Schwartz insisted in a conference call that he believes Globalstar can survive without more help from co-founder Loral, which he also runs.
But two stock analysts issued rare "sell" ratings on Globalstar shares, as analysts recalled the failed efforts of two rivals to build and operate a costly low-earth-orbit satellite system promising telephone service to every corner of the globe.
If Globalstar slides into bankruptcy, which analysts consider a possibility, it would suffer the fate that in the last two years claimed two other satellite phone companies -- Iridium LLC and ICO Global Communications Ltd.
Analysts said Globalstar's woes also dragged down San Diego-based wireless technology company Qualcomm Inc. <QCOM.O>, which like Loral is a co-founder of Globalstar. Qualcomm has an equity stake in a partnership with Globalstar to develop satellite systems.
Qualcomm shares on Nasdaq fell 9 percent, or $6-3/4, to $68-1/8. Loral shares fell 3/16 on the New York Stock Exchange to $5.
"NOT ON LIFE SUPPORT"
Globalstar management described its growth in revenue, subscribers and usage as "unacceptably slow," and said Loral, which holds 40 percent of its shares, was no longer providing it with cash. It said it has enough cash to run through May.
Schwartz said in a conference call Globalstar, which began service last year and got $56 million in equity investments late last month, can become commercially viable without more help from Loral.
He said the company has no plans to file for bankruptcy protection or restructure its debt load, and will make its next interest payments to bondholders.
"Globalstar is not on life support," he said. "We believe we have enough time, with the resources that are in-house now, to demonstrate the viability of this project. There is no crisis atmosphere here, there is no life support, we are not holding up bills or accounts payable."
He did not convince Credit Suisse First Boston or Merrill Lynch & Co. Both firms on Monday cut their ratings for Globalstar to "sell," with Merrill Lynch's Marc Nabi saying "the equity value of Globalstar's shares is zero."
DEBT LOAD RISES
The company had about 21,300 subscribers generating 2.3 million billable minutes in the quarter, about double the numbers it had in June. Schwartz characterized this growth rate in a statement as "unacceptably slow."
That's a "new posture for management," said William Kidd, an analyst for C.E. Underberg, Towbin in New York, who has a "neutral" rating on Globalstar's stock.
As of September 30, Globalstar had $285.9 million of cash, while its total debt load, most of which is unsecured, has risen 17 percent this year. Analysts have questioned Globalstar's ability to pay $1.4 billion it owes bondholders, and the company tapped a $250 million credit line in June.
The company also faces competition from wireless phone service providers such as Nextel Communications Inc. <NXTL.O>, Sprint PCS Group <PCS.N> and Verizon Communications <VZ.N>.
"Bondholders were pretty much way ahead of the curve," said Jonathan Savas, director of high yield telecommunications research at Merrill Lynch. "Soon after Iridium blew up, the bonds traded as though Globalstar will follow its fate. That's looking more and more the likely scenario."
Globalstar carried senior debt ratings of "Caa1" from Moody's Investors Service and "CCC," roughly one notch lower, from Standard & Poor's. Both ratings are low junk grades.
Globalstar L.P. is a partnership that includes Globalstar Telecommunications.
17:49 10-30-00
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