Is it a bird? A plane? No, it’s Craig McCaw, swooping in to rescue yet another struggling satellite wireless phone company-leading a group of investors to provide $74.6 million in interim financing for the bankrupt Iridium L.L.C.
This is McCaw’s second performance in his satellite superhero role. With his Teledesic broadband satellite company and Eagle River Investments L.L.C. financial arm behind him, McCaw led the charge to save bankrupt satellite carrier ICO Global Communications late last year.
Far from bailing out the struggling Iridium completely, the $74.6 million debtor-in-possession financing will fund Iridium operations through June 15. During that time, McCaw and the investors will develop arrangements for a complete financial restructuring, which may include McCaw buying Iridium’s assets.
Iridium has been financing operations through a commitment of $20 million from existing investors, which runs out on Feb. 15. McCaw’s financing plan has yet to be approved by the U.S. Bankruptcy Court for the Southern District of New York.
“This interim financing is a critical step toward Iridium’s successful restructuring and emergence from bankruptcy under the control of Craig McCaw,” said Jon Richardson, chief executive officer of Iridium.
Since it entered bankruptcy in August, Iridium has been looking for an outside investor to fund a reorganization plan. Whatever McCaw comes up with, it will have to be a substantial funding effort. Iridium’s current debt level exceeds $4 billion, and has publicly stated any reorganization will eliminate any current equity in the company held by shareholders or those holding unsecured debt.
Motorola Inc., Iridium’s largest investor, praised the McCaw investment and to an extent wiped its hands of any further involvement with the company, which has adversely affected Motorola’s quarterly earnings for the last year.
Following any reorganization plan enacted by McCaw, Motorola’s equity stake in Iridium will be reduced to a minority one, the company said. In addition, Motorola said it will not increase its financial exposure to Iridium beyond the $740 million pretax charge it had set aside for the satellite carrier at the end of 1999.
That McCaw would make such a move has been rumored since last September, when his Teledesic interest issued a press release stating it was examining possible early-launch strategies, implying the bankruptcies of Iridium and ICO presented opportunities to do so.
McCaw’s first move was to bail out ICO through a $1.2 billion restructuring plan. Earlier last week, ICO announced it may begin drawing on the second tranche of $275 million of that financing. This completes the $500 million of debtor-in-possession financing allowed ICO as part of the $1.2 billion bailout. The remaining $700 million in exit financing is expected to be completed in the second quarter, after bankruptcy court approval and the consummation of ICO’s reorganization plan.
Iridium was the first satellite phone company to launch service. Its 66 low-earth-orbit satellite went live commercially on Nov. 1, 1998. Since then, it struggled to attract the number of subscribers needed to pay off the system’s $5 billion cost.
There were well-publicized handset manufacturing and delivery problems, confusing price structures and misconceptions about how the service even worked.
The company’s inability to meet its bank loan covenants forced the company to declare bankruptcy. Shortly after, ICO followed suit, without having even launched a satellite into orbit to begin building its constellation.
Exactly what McCaw hopes to do with these satellite assets remains unclear. Teledesic is a broadband “Internet in the Sky” venture not expected to launch service before 2004. ICO and Iridium are both narrowband voice systems, and as such not technologically compatible with a broadband system. Given the networks’ orbital location, McCaw can’t exactly load new software to them.
All are satellite offerings, however, and the bankruptcies of ICO and Iridium present an opportunity to snatch up expensive satellite assets at a bargain. Rather than operate both Iridium and ICO as separate, competing companies, most expect McCaw to merge the two.
With varying satellite concerns, McCaw may bundle various services into one large satellite powerhouse. Also, he could leverage his stake in Nextel Communications Inc. to somehow integrate them all.
McCaw’s interest in the satellite space also proved a boon for the second satellite mobile phone service provider to launch-Globalstar L.P. McCaw’s massive success in the early days of the cellular phone industry causes many to believe he may repeat the feat in the fledging satellite phone space.
