During its second-quarter earnings conference call, Motorola executives said Iridium L.L.C. could face liquidation if it fails to bring in the revenues and subscribers originally planned.
At the same time, Motorola asserted it will not contribute further funding to Iridium unless other investors do.
“Motorola will not provide any further support beyond existing contractual commitments unless there is substantial participation in the Iridium L.L.C. restructuring from all parties with a significant financial interest,” read a Motorola statement. Such investors would include Lockheed Martin Corp. and Raytheon Co.
The comments sparked a selloff of Iridium stock, the price of which fell more than 10 percent, from $8.18 to $6.70. The following day, Iridium stock rallied back up to $7.25.
The liquidation comment came from Robert Growney, Motorola chief operating officer, who said Iridium had three options-restructure out of court, file for Chapter 11 bankruptcy protection, or face liquidation.
Iridium is negotiating with its bank lenders and restructuring its debt. The company recently was given a third extension of the deadline to meet certain revenue and subscriber figures required under its bank covenants. But restructuring is expected to be difficult. Iridium has about $3 billion in debt to restructure. The company reported a net loss of more than $500 million after the first quarter.
John Richardson, Iridium chief executive officer, released a statement in response to Motorola’s comments.
“As we have said in the past, Iridium is working with its creditors, Motorola and its other investors to restructure the capitalization of the company,” he said in the statement. “Whether this happens through an in-court or out-of-court proceeding is largely a procedure that will be decided as part of the discussions with these various parties. While Motorola may have felt compelled from a legal perspective to outline all theoretical possibilities, the company is not aware of any consideration being given to liquidation.”
On Thursday, Iridium invoked a 30-day grace period to pay the $90 million in interest due on its $1.45 billion outstanding senior notes. Iridium said the grace period, which is allowed under the terms of the notes, will allow it to continue discussions with creditors and investors regarding the debt restructuring.
Motorola said its financial exposure to Iridium is about $2.2 billion, which it will cover partially with cash reserves created for that purpose.
