Globalstar Tumbles In Secondary

Globalstar was making waves in the junk market again last week, with its bonds tumbling in the secondary about nine points to the mid 50s, investors said. One portfolio manager called it "the meltdown of the week," while others in the market seemed to have disparate views.

But regardless of their perspective on the matter, market players agreed that the company - with more than $1 billion in outstanding junk bonds - is at a critical juncture, and that the next few months will be key.

One analyst said the company is still in a positive position and could easily see the bonds go back up to par if it can execute its objectives, but some investors are not waiting around to find out.

The trouble started last week when it was reported that the company likely wouldn't meet expectations of one million phones by the end of next year.

With four phone manufacturers pumping out a combined 50,000 phones each month from now until the end of 2000, analysts said that at most there will be 750,000 phones available.

The company, which could not be reached for comment, is said to be sticking with the one million estimate, on the "demand-pull" theory that as more phones get produced, an ever-increasing number will be craved by consumers so the monthly numbers will increase throughout the year.

Phelps Hoyt, an analyst that tracks the company at KDP Investment Advisors, said he doesn't view the shortfall as a hindrance to cash flow because he had estimated a far lower number - about 350,000 phones in use - all along.

But with Globalstar trading currently in the 50s and Iridium in a reorganization effort with bonds in the single digits, some market players wonder if that's where Globalstar's bonds will be next year.

Hoyt said the basic scenario - a start-up company in a young industry that has seen two bankruptcies already - definitely will test the mettle of buy-siders in the coming months. Any news coming from the company - good or bad - will likely have big, and swift, impacts on trading levels.

"People will have a hair trigger on the company," Hoyt said.