After spending 10 years and $5.8 billion building and launching a constellation of 66 low-earth-orbit satellites to provide mobile voice and paging services worldwide, Iridium L.L.C. is facing a new countdown-toward extinction.
If the company doesn’t find someone to replace Craig McCaw as its financial white knight by Wednesday, the company may be forced to shut off its system by the end of the week, leaving customers with several thousand dollars worth of useless equipment at midnight, March 17.
After McCaw’s Eagle River Investments L.L.C. pulled its proposed bailout for the bankrupt satellite mobile phone provider, Iridium managed to secure $3 million in financing March 3 to fund operations through March 17, during which time it must find a new financial backer or face liquidation. The deadline for a real bid, complete with a debtor-in-possession deposit, is March 15.
The $3 million is the cash collateral left over from Iridium’s existing bank facilities, which it hasn’t been allowed to access since Motorola Inc. agreed to provide $20 million in operational financing that lasted through mid-February.
McCaw and Motorola shared $5 million in additional financing that funded Iridium operations through March 6, giving McCaw time to conduct due-diligence on buying Iridium’s assets in auction.
The bankruptcy court granted Iridium access to the $3 million after that process led to McCaw’s reversal. He said he found more synergies between his Teledesic satellite-based Internet venture and ICO Global Communications, a yet-to-launch satellite voice provider like Iridium that he is bailing out of bankruptcy.
Iridium lawyers reportedly told the court some 21 companies were being approached with offers to buy Iridium. The company said it is committed to the sale of its assets.
“We have received expression of interest from other potential buyers,” said Randall Brouckman, Iridium chief operating officer. “Much attention has been afforded the potential McCaw bid. Now that he has clarified his intentions, we believe that the quality of our system and the value of our assets should attract additional qualified proposals.”
Watching the whole saga very carefully is Motorola, Iridium’s largest investor and contractor. Besides funding a large portion of the system’s creation, Motorola has a five-year, $2.8 billion contract to operate and maintain the Iridium satellite constellation.
But Motorola hasn’t seen a dime from that contract. The company continued to support the network in hopes that Iridium eventually would reverse its low subscriber additions and poor financial situation, but patience has obviously run out.
“We’ve agreed to continue operations and maintenance of the system through March 17,” said Motorola spokesman Scott Wyman. “It would not be unreasonable to believe that Motorola is looking at plans on decommissioning the system, if that was required as part of contingency planning.”
Should a bidder buy up Iridium assets and fund operations, it could deal with Motorola separately to continue its network operations and maintenance contract. If not, Motorola likely will decommission the system, which includes destroying the satellites by programming them to re-enter the earth’s atmosphere, causing them to burn up.
Wyman declined to speculate on exactly how or when this would occur.
“The future of Iridium will be decided in bankruptcy court,” he said. “We’ll continue to operate and maintain the network until the 17th.”
While it has endeavored to distance itself from Iridium’s problems, Globalstar L.P., the second LEO-based global voice service provider to launch commercial service, reportedly is having problems as well. Merrill Lynch reduced its investment rating on the company to long-term neutral, from accumulate, citing slow subscriber acquisition and falling airtime pricing. Analysts warned Globalstar could face potential liquidity issues later this year as well.
