According to a U.S. Securities and Exchange Commission report filed last week, the recently bankrupt Iridium L.L.C. said it proposed offering bondholders and other creditors an equity stake in the company in lieu of cash.
Iridium filed for Chapter 11 bankruptcy protection Aug. 13, after defaulting on $1.5 billion in loans.
Under the financial restructuring plan, Iridium would pay its obligation to holders of $1.45 billion in bonds and other debt with a one-third equity stake in the company. Motorola Inc., Iridium’s largest investor at 18 percent, would receive another 12-percent equity stake in return for $500 million of unsecured debt.
The downside of the plan is that the equity given creditors will dilute the equity stakes held by current investors. Exactly how much dilution will occur is not clear. Should the plan be approved, bondholders collectively would own about 33 percent of the company, and Motorola at least 12 percent.
In the restructuring plan, Iridium asks current investors to contribute another $500 million to help pay for operations throughout the year. Should they concede, investors would find their equity interest rise. If they don’t contribute, their equity stake would remain diminished.
Additionally, the plan calls for Motorola to defer to a later date $400 million in payments due toward the $2.8 billion, five-year vendor contract between the two companies. Iridium’s banks also are asked to defer the maturity of their loan to an unspecified date. At present, Iridium’s $800 million senior secured bank facility matures in 2000, and its $750 million loan guaranteed by Motorola matures in 2001.
While parent company Motorola reportedly has approved the plan, bondholders continue to review it. Company spokeswoman Michelle Lyle said Iridium continues to hope the restructuring negotiations will be completed in less than a month.
In the filing, Iridium stressed the plan was presented to creditors before it filed for bankruptcy, and that status may cause details of the plan to change.
The exact nature of Iridium’s financial woes were somewhat revealed in another SEC filing, this time disclosing the company would not be able to file second-quarter earnings results on time. While exact figures were not forthcoming, Iridium said it expected the second-quarter net loss to be significantly more than the $1.07 billion combined net losses reported by its various business entities after the first quarter. At that time, Iridium World Communica-tions Ltd. listed a net loss of $60.4 million; Iridium L.L.C. a net loss of 507.1 million; and Iridium Operating L.L.C. a net loss of $505.3 million.
Meanwhile, since the bankruptcy, Iridium’s gateway providers in Asia, the Middle East and the United States made assurances their respective businesses were in good financial shape. Iridium North America, in fact, claimed recent price cuts have spurred a 25-percent boost in subscribers in the last six weeks. Additionally, Iridium’s partners in Mexico have begun selling the service there, considered a potentially large market for the satellite phone service.
The gateway providers own the physical ground stations used to link the satellite constellation with terrestrial networks.
Iridium has yet to disclose the number of users on its system to date.
