ICO Furthers Turmoil in the Satellite Sector


Satellite company ICO Global Communications needs capital badly but is having a tough time finding it. In fact, Standard & Poor's said that if the company does not find part if the necessary capital by the beginning of next month, it will likely be forced out of business.

Even before the company announced last week that it was not successful with a secondary stock offering, investors were skeptical about the finances - and the future - of the issuer.

The latest scuttlebutt is that ICO is in talks with potential strategic investors, essentially handing over control to whomever the partners may be. The company could not be reached by press time, but one analyst said that Hughes Electronics, which owns satellite company DirecTV, is one name that has been bantered around.

The strategic investors are said to be interested in investing about $600 million in ICO, according to market sources, but even after that the company will need close to another $1 billion to fully implement its satellite network.

The company is said to be looking at raising the money through the capital markets, since it already has significant bank debt, but several investors expressed deep concern whether anybody would buy new bonds from the issuer.

The bondholders, for their part, are in a "Catch 22" situation. The bonds are trading at about 41, and if there is a change in control, there would typically be a 101 option. But the company obviously cannot pay that, one investor said, so it would have to negotiate a waiver from the bondholders before a strategic partnership could be inked.

Adding further troubles, the company was downgraded twice in the past couple of weeks. On Aug. 2, Standard & Poor's downgraded the rating on the senior unsecured notes to CC from CCC+. That came after the company announced it would miss its Aug. 1 interest payment (which has a 30-day grace period). ICO does, however, have enough cash on hand to make the payment but is waiting for the outcome of its quest for capital, according to the rating agency.

Standard & Poor's said that the company will likely be forced out of business if it fails to raise additional money by the beginning of September.

And it was just a week earlier, on July 26, that Standard & Poor's lowered the rating on the senior unsecured notes to CCC+ from B.

The news of a possible strategic partner, however, came after the company announced last week that it failed in raising the necessary $500 million for the rights offering and, consequently, issued no shares. The money that was generated will be returned.

One market observer said that he disagreed with much of the market sentiment. At levels of 41 in the secondary, he said the notes are worth a hard look on the hope that the company will survive.

He also noted that the physical system used by ICO is cheaper, and therefore the end consumers are charged less, than counterparts like Iridium and Globalstar.

ICO uses satellites that are further from the earth, and as such, each one has a larger "spotlight" of service. That means the system can be implemented using fewer of them. Furthermore, market players said the phones themselves are smaller and more convenient that Iridium's.