Satellite telecommunications company Iridium filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code on Friday, two days after defaulting on more than $1.5 billion in loans.
The company filed in Delaware's Bankruptcy Court, just hours after a group of bondholders sought an involuntary bankruptcy filing in New York, setting up another battle to determine the fate of the company. The bondholders, who hold about 25% of Iridium's $1.45 billion of outstanding senior notes, are betting that the courts in New York will offer a better chance of getting their money back.
Iridium had already defaulted on $1.55 billion in bank loans, after failing to lure enough users to its 66-satellite global phone network. The filing ends weeks of negotiations among Iridium's bondholders, bank lenders and Motorola. Motorola is the biggest shareholder in Iridium with an 18% stake.
"The major stakeholders in this restructuring--banks, bondholders and Iridium's strategic partners--have voiced support for this course of action," Iridium said in a statement. "Iridium believes they will continue to cooperate during this process."
Trading in shares of Iridium World Communications Ltd., the publicly traded arm of Iridium, was halted. Before the halt, Iridium plunged $1.19 to $3.06 on Nasdaq, on volume of 4.8 million shares. Chapter 11 of the U.S. Bankruptcy Code gives a company a chance to stay in business while it tries to develop a plan to repay its debts.
"We have been in active negotiations with the company for the past month. Despite the best efforts of the parties involved, consensual agreement could not be reached on a restructuring plan," Talton Embry of Magten Asset Management Corp., a member of the bondholder group, said in a prepared statement.
"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."
While the bankruptcy filing gives the company breathing room, it may not solve a key problem--a dearth of customers.
"Iridium will emerge from bankruptcy as a much stronger company," said William Kidd, an analyst at C.E. Unterberg Towbin, who has a "sell" rating on the stock. "However, it's still not proven even with a better cost structure whether it can attract subscribers."
In addition to the debt woes, the company has suffered from slower-than-expected subscriber growth, marketing and distribution missteps, and previous technical problems with its telephone handsets.
Motorola expressed strong support for the company's business and said it believed a restructuring plan could be accomplished within 30 days.
Motorola said it would continue full operational support for Iridium and all current and future subscribers during the company's reorganization. It said it would continue to invest in the technology and to develop the next generation of Iridium products.
Nippon Iridium Corp., Iridium's second-largest investor, also expressed support for the company.
"We continue to believe in the long-term viability of the Iridium project and are confident that this approach will greatly strengthen Iridium's financial position and enable the company to succeed in the marketplace," Nippon Iridium said.
Iridium's bankruptcy filing followed an announcement on Thursday by rival satellite telecommunications company ICO Global Communications Ltd., which said it failed to secure $600 million in financing commitments and it was seeking revised financing options.
The fate of a third satellite telecommunications company, Globalstar Telecommunications Ltd., remains unknown, analysts said. While Globalstar may avoid many of Iridium's missteps, the market for high-price wireless global phone services remains uncertain, analysts said.