Iridium Defaults on $1.5 Billion

WASHINGTON â€”  Iridium World Communications said Wednesday that it has defaulted on loans totaling more than $1.5 billion, pushing the struggling operator of a $5-billion global satellite telecommunications network another step closer to insolvency.

The defaults--on an $800-million loan and a $750-million loan--occurred after Iridium failed to meet customer and revenue growth targets required under the $800-million loan.

Its third extension on the $800-million senior secured loan expired Wednesday, triggering the subsequent default on the other loan, Iridium spokeswoman Michelle Lyle said. The company did not ask for another extension, she added.

The default, which has the potential to lead Iridium into bankruptcy, could also hurt telecommunications equipment supplier Motorola Inc. , Iridium’s original backer, a key shareholder and one of its loan guarantors.

Motorola holds about 18% of Iridium equity, Motorola spokesman Scott Wyman said. The Schaumburg, Ill.-based company is the guarantor of the $750-million loan in default. The $800-million loan is secured by another party, he said.

“Regardless of today’s expiration of the banks’ extension, we will encourage all of the relevant parties to continue negotiations in an effort to agree on a plan to restructure Iridium’s debt,� Wyman said. He declined to comment further.

William Kidd, an analyst at C.E. Unterberg Towbin, said although the banks could technically force Iridium into bankruptcy, he believes they would not act until seeing how they would fare under a restructuring plan.

“Right now the banks are giving the company some period of time to see if they can pull this one out,� Kidd said.

A decision by the banks “would be days at a minimum,� he said, and probably weeks.

Iridium, which provides global phone service through its network of 66 satellites--which cost $5 billion and took nearly a decade to get into orbit and operating--has suffered from slower-than-expected subscriber growth, marketing and distribution missteps and previous technical problems with its telephone handsets.

The company said it is continuing to consider options for restructuring, it said.

Iridium faces another deadline Sunday. It must meet a $90-million interest payment on $1.45 billion in bonds. The payment was originally due July 15, but Iridium exercised a 30-day grace period.

Its bonds were trading at about 26 to 27 cents on the dollar, one analyst said.

Earlier this week, analysts said they expected the company to reorganize its debts and loans through an agreement with its bondholders and lenders, under which Iridium’s bondholders would swap half to two-thirds of their securities for new debt that is convertible into Iridium common stock.

Iridium shares closed 38 cents lower at $5.94 on Nasdaq. Motorola shares rose $3.94 to close at $93 on the New York Stock Exchange.