Iridium Falls, But Upside Possible

In contrast to the good news for telecom investors in the whole Global Crossing and Qwest saga (see story on p. 1), the situation at Iridium is getting worse. But there is light at the end of the tunnel, as some investors still expect some upside in the issue.

The satellite concern made news last week, and made investors nervous at the same time. Its parent company, Motorola, made an official announcement that it expected other equity investors and lenders to share some of the burden before it pumps any more money into the satellite venture that has, so far, lost money.

One analyst characterized it as there being enough pain to go around, adding that Motorola is tired of shouldering all of it by itself.

The stock investors lost the most on the news, as the bondholders already had pushed the notes down to the 20's, essentially saying that they already had concluded the equity was worthless. The stock dropped to $6.875, a decrease of 18%.

But there may be better days ahead. Several investors familiar with the situation said that there is indeed some upside to the name if the buy-side has the nerve to ride it out.

"There is simply too much at stake here [for Motorola] to let it die," according to one analyst. Iridium has faced problems trying to market its expensive, bulky phones that are supposed to allow callers communicate anywhere in the world, competing against smaller and cheaper phones that provide a range wide enough to satisfy many users.

Other strategic investors in Iridium include Lockheed Martin, Raytheon and American International Group Inc.

Iridium has four outstanding issues, all due in 2005: a $350 million, 10.875% deal; a $300 million, 11.25% issue; a $300 million, 13% transaction; and a 14% offering worth $500 million.