Iridium Faced With $90M Coupon Payment This Week


Troubled satellite company Iridium owes bondholders $90 million in coupon payments this Thursday on four different high yield offerings with a face value of $1.45 billion, but some investors are skeptical the issuer has enough to pay it.

There is an automatic 30-day grace period, and recently the stock has actually increased somewhat on the speculation that there are positive negotiations underway with bondholders. But there are still some big hurdles for the firm to overcome.

First, if Iridium surprises the market and makes its high yield coupon payment, then the recent extension on $800 million in bank debt gets erased, thereby making those senior debt payments due as well. It recently got an extension on its senior debt from Chase Manhattan and Barclays, giving the issuer until Aug. 11 to meet minimum customer and revenue goals.

And further complicating matters for Iridium is that the likely plan to appease debt investors may not sit well with equity holders.

An Iridium spokeswoman said that the company probably will seek to convert the bonds into a non-cash pay note, such as a payment-in-kind issue or a convertible note, whereby the bondholders will end up with stock instead.

While bondholders may be interested in that, it would be a tough sell to the existing stock investors, said one market observer. That plan would essentially reduce the value of the outstanding stock, and Iridium is particularly sensitive to that because its foreign equity investors, many of which are telecom companies, hold the rights to use some of the satellites, according to market sources.

An even more fundamental problem is the value of the equity. One market observer said there are some short positions in the stock of Iridium, as well as other satellite companies, which has kept the stock price artificially high. It closed Wednesday July 7 at $9.50 a share; the price has fluctuated in the last 52 weeks between $4.969 and $61.625 per share.

Iridium became the world's first global satellite phone and paging company late last year. Its network of 66-low earth orbiting satellites, combined with existing cellular systems, enables customers to communicate around the globe. The company made a big splash in the high yield market initially, with all of its deals pricing well above par, but operational and technological problems hampered the issuer over subsequent months.