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To: djane who wrote (3306)	3/8/1999 2:51:00 PM
From: djane	Respond to of 29987

*Iridium numbers fall short of target rcrnews.com March 8, 1999 By Antony Bruno Based on first-quarter operating results projections, Iridium L.L.C. likely will fall short of the revenue and subscriber addition targets stipulated in its bank loan agreements, and the company said it expects to modify its future milestones to avoid defaulting on its bank covenants. While quarterly operating results often fall short of expectations, Iridium is especially concerned because it relies on meeting pre-set milestones in order to receive additional financing from its bank facilities—in particular, its $800 million senior secured credit agreement. The bank covenants require Iridium have at least $4 million of cash revenues, $30 million of accrued revenues and 27,000 subscribers by March 31. At the end of 1998, Iridium had about 3,000 subscribers and few expect the figure to rise fast enough to meet its first-quarter target. After initial news reports highlighted the situation, Iridium issued a statement saying it currently is not in any discussions to change these targets, but ‘‘we do expect that we will be working with our banks to modify these milestones going forward.'' Standard & Poor's Corp. March 1 downgraded about $2.8 billion in debt owed by corporate entities related to Iridium, lowered its speculative grade corporate credit and secured bank loan debt ratings on Iridium Operating L.L.C. and Iridium Capital Corp. to B- from B, and lowered its senior unsecured debt rating to C+ from B-. It placed these ratings on CreditWatch ‘‘with negative implications.'' However, S&P affirmed its AA- rating on an unsecured bank loan from Motorola Inc., which has no operational requirements. In defense of its network, Iridium officials pointed to a lack of available service and product—not lack of market demand—for the lower-than-expected numbers. Iridium is no stranger to start-up challenges. During the launch phase, it experienced inoperable satellites and handset testing delays that led the company to postpone its original September commercial activation deadline. Once operational on Nov. 1, Iridium then found Motorola was having handset manufacturing ramp-up issues, and Kyocera Corp. still wasn't meeting its handset performance requirements. Now that the handset problems have been resolved, the company said it does not yet have the fully trained sales channels worldwide necessary to quickly sell the product, an issue of ongoing concern. [Is this anyway to run a business....] ‘‘We expect that, as more service providers begin actively selling Iridium products and services over the next few weeks, Iridium's presence in the market will increase,'' read the statement. Iridium has played somewhat of a poker game in terms of the financing question. From the get-go, Iridium had to meet deadlines in return for additional funding. Its original $1 billion loan from Chase Manhattan Bank was divided into four installments. During the launch phase, the company was required to place a certain number of satellites in orbit before the banks would loan it the money to launch more. For the final $250 million installment, Iridium needed to secure the necessary licensing agreements to cover 72 percent of its business plan and commercially activate the network. Some say the quality of Iridium's network was not at a level that would stand up to mass-market demand under normal circumstances. But since there was no competitive alternative, the company did so anyway to receive its needed financing, figuring it could strengthen the network over time before the next competitor entered the market. [Unbelievable...] For its part, Iridium tends to blame its problems on the incredible technical and organizational challenges associated with building, operating and selling a global voice network based on 66 low-earth-orbit satellites and not to a lack of interest among users. ‘‘It is important to note that the causes of the delays in Iridium's subscriber ramp-up have not been associated with the level of market demand for our product,'' it said in the statement. ‘‘This is not an indication of how Iridium will fare in the months ahead, nor does it affect the company's ability to meet its debt payment obligations. We believe our banks will agree and will continue to support the Iridium program.'' However, Iridium's share price fell from $27.31 on Feb. 25 to $19.50 at press time, the week during which the first-quarter revelations and subsequent speculation were revealed. Latest Issue Copyright 1999, all rights reserved. Please report problems to webmaster.rcr@inlet.com March 8, 1999 rcrnews.com