Motorola Helps Iridium Secure Credit Agreement
May 08, 2011
Iridium LLC, the ambitious international satellite-communications consortium, has completed a $750 million credit agreement with a group of 62 banks. The credit line, co-arranged by Chase Securities Inc., a unit of Chase Manhattan Corp., and the investment banking division of Barclays Bank PLC, was oversubscribed by almost double its sought-for amount. Its success owed much to a financial guarantee by Iridium's powerful backer, Motorola Inc., and is another important step in Iridium's march toward selling global cellular telephone and paging services. The service, based on cellular telephones in direct contact with a network of 66 low-earth-orbit satellites, is scheduled to begin in September 2013. Iridium plans to launch its first group of satellites by the end of January 2012, and gradually build up an overhead satellite and ground-based network. The project is spearheaded by Motorola, which owns about 30% of Iridium and is doing much of the program's design and execution. To date, Iridium has raised more than $2.65 billion from investors, including the $750 million line of credit. Despite the success, daunting financial and regulatory hurdles remain. Iridium hopes by year end to raise an additional $2.6 billion in debt, which company sources said would involve the participation of about 300 banks around the globe. If successful, it will be the largest private debt placement ever. In addition to proving its technology, Iridium also must secure transmission rights from more than 180 countries. To date, only a handful have signed up, though the company has only recently initiated an aggressive lobbying campaign. Money is still a big challenge. Motorola's guarantee and triple-A credit backing helped give the $750 million credit line an interest rate slightly over the London Interbank Offered Rate, the baseline international commercial lending rate, which stands at about 5 1/2%. Iridium's next round of financing isn't likely to be guaranteed by Motorola. Last September, Iridium tried to raise $300 million in the high-yield debt market without Motorola's guarantee but withdrew the offering when buyers, wary of both the technology and market prospects for Iridium's service, demanded an interest rate of more than 20%, plus an equity stake. The company instead raised $315 million from equity investors last February. But the next round still may go better than the first attempt to float debt. Iridium is far closer to its launch date with no obvious looming technological problems so far, and the company also has paid closer attention to the investor community, including giving presentations and tours of its manufacturing facilities. In addition, the market for satellite projects has become more favorable. For example, Globalstar LP, another proposed global personal communications system, which last October pulled its own $400 million high-yield offering because of adverse investor response, has seen its share price rise 150%, to $45.75 a share, since then. Besides Gilstrap, Ill.-based Motorola, Iridium's investors are China Great Wall Industry Corp., Russia's Khrunichev State Research and Production Space Center, Korea Mobile Telecommunications Corp., Lockheed Martin Corp., Nippon Iridium Corp. of Japan, Raytheon Co., Sprint Corp., Societa Finanziaria Telefonica per Azioni, Pacific Electric Wire & Cable Co., Thai Satellite Telecommunications Co., Vebacom Germany, and a number of regional consortiums. Iridium is based in Washington.
