WASHINGTON-American Mobile Satellite Corp. may be in enough financial trouble that bankruptcy has been added to the list of possible solutions.
The five-year-old, Reston, Va.-based mobile satellite concern filed its annual Form 10-K at the Securities and Exchange Commission April 1, but it was not joking about possible defaults in loan payments to creditors this week. According to the document, AMSC will need an additional $150 million to pay off debt, for day-to-day operations, for new and additional equipment and for working capital in 1996. Some $200 million in additional funds has been projected as needed for 1997.
This development appears to be a result of delays in system deployment, particularly with delivery of satellite phone subscriber equipment and provision of such data services as facsimile. AMSC also underestimated marketplace acceptance of its satellite service, although there currently are some 8,000 mobile data units-primarily installed in trucks-hooked up to AMSC’s SkyCell service. About 1,000 portable voice units have been deployed.
There also have been problems with the AMSC-1 satellite in that its U.S. spotbeams recently were reconfigured from four to three to cover for satellite components that were damaged last year during the testing of a new service. While there has been no interruption in subscriber services because of this reconfiguration, the spotbeam degradation will affect channel-usage revenues sometime in 1998. AMSC plans to file an insurance claim regarding this shutdown.
AMSC also cited global competition from Inmarsat, PanAmSat, Qualcomm Inc., the upcoming big and little LEO licensees, and Claircom as a contributing factor to its financial worries.
“The company does not believe it can obtain, on commercially reasonable terms, adequate liquidity to support its operations in the near term without substantial credit support from its principal stockholders [AT&T Wireless Services Inc., Singapore Telecom and Hughes Communications Inc.],” the 10-K revealed. “The company is currently holding discussions with certain of its stockholders regarding the terms on which they may be willing to provide such credit support.”
In January, the company arranged for $40 million in interim financing from Morgan Guaranty Trust Company of New York, Toronto Dominion Investments Inc. and Hughes; most of that stake has been used, and the interest on the loan changed from 11 percent to 15 percent March 31. AMSC has not met certain loan terms, such as a specified subscriber base, at this time, and it has until April 12 to do so. If covenants are not met by this date, the lenders could call the entire loan, in which case the company would be in default not only with the three creditors but with approximately $61 million in vendor- financing agreements. If further financing cannot be obtained, bankruptcy protection could be its only way out.
“Cash crunches certainly have been a problem for this industry as it takes off,” commented Daniel Ernst of Economic & Management Consultants International Inc. in Washington, D.C. “I don’t think [AMSC’s] situation is an indication of any particular problems in the mobile satellite industry.”
But will the banks actually foreclose? Probably not. To recoup any of their investments and/or loans, it would make more sense to extend additional credit and allow a knowledgeable team to continue to run and expand the business.
Talks between AMSC, Morgan Guaranty and Toronto Dominion Bank for $200 million are ongoing to allow the company to remain solvent at least through this year; if AMSC is successful in convincing the banks to extend additional credit, it will use all company assets on the line as collateral. There had been some talk in February about another 4.6 million-share stock offering, but AMSC decided the climate on Wall Street at the time was unfavorable to floating such a deal.
“I do not believe AMSC will have any funding crises this year,” AMSC president and CEO Brian Pemberton told RCR. “We are in discussions with our major investors, and we will be able to release new financing details in a few weeks.” According to Pemberton, auditor Arthur Andersen LLP has given the company a clean bill of health for the coming year.
The Arthur Andersen audit of AMSC’s 1995 financials cited $6.8 million in revenues, $66.9 million in net losses ($2.69 per share), $396 million in current assets and $398 million in total liabilities and stockholders’ equity. As of last Thursday, AMSC shares (trading as SKYC on Nasdaq) were trading steadily at about $16.
High costs may not have been the primary contributor to AMSC’s problem. “They have an anemic marketing strategy,” said Iridium’s John Windolph. “They have not been aggressively marketing their services to their target subscribers.”
Despite these difficulties, AMSC continues to ponder whether to move ahead with the construction and launch of its AMSC-2 satellite in 1999. If company officials decide to proceed with the $700 million project, as much as $25 million would have to be spent this year on start-up costs, entailing another money search.
On the bright side, AMSC and CAL Corp. last week installed the first Calquest satellite telephone, which uses the SkyCell service, aboard a Mitsubishi Diamond aircraft in San Antonio, Texas.
