Satellite Cos. React to Debt Woes

The satellite sector was drawing attention last week, and most of it was not particularly good.

Iridium's recent woes saw the first step in a resolution when its largest shareholder, Motorola, said it would pump another $400 million into the satellite system, but what it is asking for in return may not sit well with others involved.

It wants to up its equity stake to 40% from the current 18%, and it also wants the current bondholders, who hold $1.5 billion worth of notes, to convert those securities into a 25% equity stake, according to analysts familiar with the company.

Motorola also wants the other shareholders to reduce their collective stake to 35% from the current 65%.

One source close to the situation said that the conversion of the noteholders to equity investors would be an obstacle, as those investors are essentially being asked to lower themselves on the capital structure, and consequently, if the company goes into bankruptcy, they would have little recourse.

Motorola had come out recently saying it expected the other major equity holders to step up and invest more before it would dedicate additonal money to the cause.

If Motorola can complete this deal, however, Iridium will have no debt on its balance sheet and will indeed be much stronger.

One of the other two players in the small industry, Globalstar, is also having its debt problems, as it is said to be having difficulty completing a $500 million bank facility.

Globalstar's bonds were trading in the 60s as of press time. One analyst said he expected the company to post a positive EBITDA in 2001.

This comes after the company had to use the bank market; company officials said last year that the junk bond market would the be the first preference to raise the extra $500 million it needs to complete the funding. Analysts said that Globalstar would have a very difficult time pricing a bond deal in today's market.

And even that is in doubt. One analyst who is following the situation said he thinks the company will need another $500 million, even after the current bank loan deal gets finished, to be fully funded.