One of Iridium L.L.C.’s main lenders, Chase Manhattan Bank, has asked Iridium to demand that Motorola Inc. provide a guarantee of $300 million under Iridium’s $800 million secured credit facility.
Iridium made the revelation in a U.S. Securities and Exchange Commission filing, detailing the progress of its capital restructuring negotiations with creditors, vendors and equity holders. In a letter sent to Motorola, Iridium said Chase Manhattan claims Iridium has defaulted on its $800 million secured credit loan, $300 million of which Motorola has guaranteed. In particular, Chase claims a “triggering” event of some kind has occurred that would have required Iridium to demand Motorola meet its guarantee. Because Iridium made no such demand, Chase claims Iridium is now in default.
In the SEC filing, Iridium said Chase’s assertion is merely “an attempt to preserve a position,” in the capital restructuring process.
“Iridium and Motorola believe that no `triggering’ event under the Secured Credit Agreement has occurred and, accordingly, an event of default under the Secured Credit Agreement for failure to demand a guarantee had not occurred,” said Iridium in the filing.
Motorola also has guaranteed a $750 million credit facility for Iridium, which the company said would also be in default if such a triggering event had occurred. Motorola’s total stake in Iridium is more than $1.6 billion, about 18 percent. Should Iridium default on the loans Motorola has guaranteed, analysts estimate Motorola’s exposure could be anywhere between $1 billion and $2 billion.
In a meeting with analysts earlier in the week, Motorola President and Chief Operating Officer Robert Growney reportedly restated the company’s position, that it would not provide further financial support for Iridium beyond what it is obligated to unless other investors contribute to the effort.
The Wall Street Journal reported that it is rumored Motorola may invest up to $400 million more if bondholders would exchange $1.5 billion in debt for a 25-percent equity stake in Iridium.
Motorola said Iridium’s financial restructuring may cause it to incur a special charge for the third quarter. “The company believes that it can absorb the negative impact of such a charge because of previously announced sales of several business and assets that are expected to generate significant gains and cash inflows in their quarter,” Motorola said in a statement.
Analysts estimate Motorola has about $850 million in reserves from which it could draw to cover its exposure to Iridium.
Iridium’ stock price was $6 at press time, while Motorola’s had fallen $3.50 to about $87.
