Chapter 11 filed against Iridium Interest payment of $90 million due Sunday
By Debra McGarry, CBS MarketWatch Last Update: 4:42 PM ET Aug 13, 1999 Movers & Shakers
WASHINGTON, D.C. (CBS.MW) — A group of investors filed an involuntary Chapter 11 bankruptcy petition against financially troubled Iridium World Communications on Friday, two days after the company defaulted on over $1.5 billion in loans.
“It became clear to the various parties at interest that a Chapter 11 filing was inevitable and, unless drastic action was taken, the company’s assets could be at serious risk,” said Talton Embry of Magten Asset Management Corporation, a member of the beleaguered company’s steering committee, in a statement.
Iridium (IRID: news, msgs) has 20 days to respond to the involuntary petition and can continue to operate its business in the ordinary course.
On Wednesday, Iridium said it defaulted on more than $1.5 billion in loans after failing to meet customer and revenue growth targets required on an $800 million loan, the third extension of which expired Wednesday.
The expiration triggered the default on that loan and another for $750 million. Iridium did not seek another extension, spokeswoman Michelle Lyle told Reuters.
The default also delivered a blow to Motorola (MOT: news, msgs), Iridium’s 18 percent owner, and its loan guarantor. Motorola shares gained 5 1/4 to close at 93 amid an overall market rally.
Motorola issued a statement on Thursday in which it reiterated its support for Iridium, its operations and gateways and all current and future subscribers. However, Iridium’s largest shareholder said its “willingness to participate in providing additional financial support depended on a substantial degree of participation in a financial restructuring by all other relevant parties with a significant financial interest.”
Motorola is the guarantor of the $750 million loan in default. The other $800 million loan is secured by Chase Manhattan Bank. According to Motorola, creditors have been working on plans to restructure Iridium’s debt.
The default has hit additional investors, namely Japan’s Nippon Iridium, the second largest shareholder after Motorola. Japan’s Kyocera (KYO: news, msgs) and long-distance phone service provider DDI Corp. are the major shareholders of Nippon Iridium. See full story.
“It’s in every investor’s interest to keep them (Iridium) out of bankruptcy, because bankruptcy shrinks the size of the pie available to Motorola, banks, and bondholders,” analyst Armand Mussey of Bank of America Securities told CBS.Marketwatch.com on Wednesday.
Once Iridium missed its first customer subscription projections, it had less revenue available for advertising, which resulted in the company missing its revenue and subscription projections even further. “Then they have so little money left over that the banks start coming after them and meanwhile all the interest on their loans keeps accumulating,” Mussey said.
On Aug. 15, Iridium must meet a $90 million interest payment on its $1.45 billion in bonds. The payment was originally due July 15, but Iridium exercised a 30-day grace period.
Trading in shares of the struggling satellite communications company were halted amid a 1 3/16 slide to 3 1/16 on volume of of almost 5 million shares.