Bondholders to Decide Fate of ICO Global

ICO Global is making waves again in the high yield market, as the issuer asked bondholders recently to waive their right to a 101 change-of-control option price on their notes as the company tries to procure some much-needed capital.

The request came Friday, Aug. 20, along with another request for a waiver in the $45 million coupon payment that is due Sept. 1. Then last Monday, Aug. 23, the company dropped the extension request and only pressed for the change-of-control request.

If the request is not granted, the company actually could cover the 101 price - that would parley into a cost of more than $544 million - in an all-out liquidation.

ICO has lined up strategic equity partners for about $500 million. As reported earlier, Hughes Electronics, which owns satellite company DirectTV and which also manufactures satellites, is said to be in the deal for about $250 million (HYR 8/9/99). The original size of the strategic investor cash infusion ICO was seeking was $600 million but in the ensuing weeks was downsized.

ICO will still need more than $1 billion to fully implement its plan even after the $500 million from strategic investors.

The company could not be reached for comment, but analyst Phelps Hoyt at KDP Investment Advisors said it is generally believed ICO has enough cash on hand to make the coupon payment. The concern is the company may have to use the majority of its cash on hand to do so.

If ICO does fail to make that payment, or if it is forced to adhere to the 101 option, the company could be forced to liquidate. And that may not be such a bad option for bondholders, Hoyt said, because according to his analysis the firm could fetch about $650 million in an outright sale-more than enough to pay the $544 million in outstanding debt.

But if the bondholders give their consent to ongoing negotiations, they will become second in the capital structure to any bank debt that the company will almost assuredly try to procure. And then if the company still cannot stay above water, the bondholders are in a worse position

Tom Haag, portfolio manager for Lutheran Brotherhood, said he would rather see ICO get its needed capital and make a go of it, not only for its own sake but also for the rest of its small, interdependent industry. The other two players in the fledgling market are Globalstar and Iridium, both with their own host of problems, and all three typically move together in secondary trading.

Hoyt estimated that in the event the company liquidates, it could get about $100 million for the actual satellites, or at least the usable parts that another company might be interested in owning, compared with the estimated $920 million ICO spent on them so far.

Hoyt also estimated that the firm could recover $200 million from prepaid fees for launch services and another $200 million from its prepaid costs for its ground network. Both figures represent less than ICO has already paid, but other satellite companies could still use those assets. The remaining $150 million that Hoyt estimated came from land and buildings owned by ICO.