McCaw Steps Up Satellite Holdings

Telecom pioneer Craig McCaw took another step forward last week in what some investors are calling a fledgling global satellite network.

A group of investors led by McCaw made a $74.6 million cash infusion into bankrupt issuer Iridium LLC, which had been at extremely distressed levels, in the single digits, according to a high yield portfolio manager. And some investors in the industry said McCaw is preparing to up the ante later in the year for an even larger stake in the company.

For now, the company will remain operational until June 15 because of McCaw's investment. The current funding package, which was led by Motorola Inc., is slated to run out Tuesday.

The company's 14% notes saw a bump last week, investors noted, but still were below 10 cents on the dollar.

The investment is McCaw's second in the satellite sector in recent months. In November he put $1.2 billion into ICO Global, a competing satellite company. In that deal, bondholders saw their investment increase 36% to 30 from 22 in less than a week (HYR 11/08/99).

Iridium's bonds did not rise as much as ICO's. There is a lot of bank debt in Irdium's capital structure, keeping those bonds at low levels, according to Phelps Hoyt, an analyst at KDP Investment Advisors who tracks both companies.

But McCaw's presence alone should add something to the company, he said. He noted that ICO's bonds surged 28 points in November after McCaw made his announcement.

And while there were detractors who wondered if even McCaw could make these troubled companies work, Hoyt said that he couldn't imagine the financier "putting in a dime if he didn't think there was value there."

To be sure, McCaw has had plans on the drawing board for a global satellite network for some time. And originally those plans called for starting at ground zero, investors said, whereas he now has major positions in two of the three major satellite networks.

One portfolio manager said he got out of satellite investments last summer before all the turmoil hit, but he would still consider a new issue if the terms looked right.

"He's able to buy them on the cheap," the institutional investor said, but there are still hurdles to be overcome. For one thing, the potential satellite industry is much smaller than even five years ago. Since satellite communications came on the scene, cellular and PCS systems have become much better. There are also technological differences between ICO and Iridium that some say render the two systems virtually incompatible.

McCaw may have invested in the two different systems because he foresees a demand for capacity that is so great that one of the systems would not be enough, the buysider said. "Maybe he wants to be the AT&T of the sky," he mused.