Iridium staved off financial catastrophe for another six weeks on Wednesday, when the company got a reprieve from creditors to make a payment on a long overdue US$800 million debt.
The extension – Iridium's third in three months – gives the troubled satellite phone company until 11 August to come up with the cash and meet subscriber goals it negotiated with lenders. The reprieve also gives Iridium (IRID) some time to test out a new marketing strategy, which includes lower prices and a focus on industrial customers.
"This waiver comes at a critical time for Iridium," said John Richardson, CEO of Iridium LLC, in a statement announcing the extension. The company is negotiating with bondholders and key investors, including its largest stakeholder, Motorola, to come up with a plan to restructure Iridium's debt, he said.
Analysts said the latest debt extension is a logical move for cash-strapped Iridium, but it doesn't solve the company's long-term problems.
"There was a general expectation that there'd be some sort of extension as they continue to work through these issues," said Riyad Said, telecommunications analyst with Friedman, Billings, Ramsey. However, Iridium's new marketing strategy and restructuring plans may be coming too late to make a huge difference for the company.
Iridium, which launched the first satellite phone network capable of transmitting calls anywhere on earth, has so far failed to come close to meeting its subscriber targets. Since launching commercial service in November, the company has reported losses of nearly $1 billion in two quarters.
Besides the recently extended debt payment, Iridium also faces a deadline of 15 July to pay about $90 million to its high-yield bondholders. The company said it will have at least a 30 day grace period to repay that debt.
Iridium said it is negotiating with lenders to "restructure the capitalization of the company." Some analysts interpreted the announcement as an indication that it will be giving creditors a slice of the company.
Such a move might be good for creditors, but it would dilute the value of Iridium stock for existing shareholders, said William Kidd, satellite analyst for C.E. Unterberg Towbin, who said he is maintaining a sell rating on Iridium shares.
Investors reacted to Iridium's Wednesday announcement by pushing up shares by 38 cents to $10.31 in early afternoon trading.