Iridium World Communications said Wednesday it had defaulted on loans totaling more than US$1.5 billion, pushing the struggling operator of a $5 billion global satellite telecommunications network another step closer to insolvency.
The defaults, worth $800 million and $750 million, occurred after Iridium failed to meet customer and revenue growth targets that the larger loan required.
See also: Iridium Gets Another Reprieve- - - - - -
Its third extension on the $800 million senior secured loan expired Wednesday, triggering the subsequent default on the other loan, Iridium spokeswoman Michelle Lyle said. Iridium did not ask for another extension, she added.
The default, which has the potential to lead Iridium down the path to bankruptcy, also could hurt telecommunications equipment supplier Motorola, Iridium's original backer, a key shareholder and one of its loan guarantors.
Motorola holds about 18 percent of Iridium equity, Motorola spokesman Scott Wyman said. The Schaumburg, Illinois-based company is the guarantor of the $750 million loan in default. The other $800 million loan is secured by another party, he said.
"Regardless of today's expiration of the banks' extension, we will encourage all of the relevant parties to continue negotiations in an effort to agree on a plan to restructure Iridium's debt," Wyman said. He declined further comment.
C.E. Unterberg Towbin analyst William Kidd said although the banks could technically force Iridium into bankruptcy, he believed they would not act until they saw how they would fare under a restructuring plan.
"Right now the banks are giving the company some period of time to see if they can pull this one out," Kidd said.
A decision by the banks "would be days at a minimum," he said. A month, however, would not be too soon, he added.
Iridium, which provides global phone service through its network of 66 satellites that cost $5 billion and took nearly a decade to get orbiting and operating, has suffered from slower-than-expected subscriber growth, marketing and distribution missteps, and previous technical problems with its telephone handsets.
The company said it is continuing to consider options for restructuring, it said.
Iridium faces another deadline on 15 August. It must meet a $90 million interest payment on its $1.45 billion in bonds. The payment was originally due 15 July, but Iridium exercised a 30-day grace period.
Its bonds were trading at about 26 to 27 cents on the dollar, one analyst said.
Earlier this week, analysts said they expect the company to reorganize its debts and loans through an agreement with its bondholders and lenders, under which Iridium's bondholders would swap half to two-thirds of their securities for new debt that is convertible into Iridium common stock.
Iridium shares closed 3/8 lower at 5-15/16 on Nasdaq. Motorola shares rose 3-13/16 to 93 on the New York Stock Exchange.
Copyright 1999 Reuters Limited.
