Iridium returned to the junk-bond market Friday for the first time since bankruptcy two decades ago, raising US$360m to maintain liquidity through delays in new satellite launches. Virginia-based Iridium has invested US$3bn in the past eight years to launch the next generation of satellites that provide the worldwide grid for its sat-phone service.
But manufacturing delays - and a launch failure by SpaceX, the Elon Musk-founded rocket-maker that hurls Iridium's satellites into space - have lleft it behind on the upgrade Long a business-school case study for its spectacular 1990s era flame-out, Iridium had to pay 10.25% to get the five-year non-call two bond over the line.
That came at the tight end of price talk, but a touch wider to the 10% area initially circulated among investors. The new bond sale is part of a deal Iridium negotiated with banks that lent it money under a US$1.8bn export credit facility backed by the French government put in place in 2010.
That was when development of its next-generation satellite program began. As part of a deal with existing lenders, Iridium postponed US$162m of principal payments and obtained looser financial covenants on the bond, according to an investor presentation seen by IFR.
Iridium plans to use the US$360m proceeds to shore up its cash balance, fund a debt service account it is required to maintain under its credit facility and pay amounts due to satellite manufacturer Thales Alenia Space. The company, founded in 1991, has tried repeatedly to establish a thriving base of customers for its satellite phones, which have truly global coverage but with high device and usage fees.
Many investors say they are generally wary of satellite operators. But compared to the old days, Iridium now has plenty going for it, executives told investors during the roadshow. While leverage will reach a staggering 8.1 times on a gross basis after the bond sale, management expects capital expenditure to drop from US$400m currently to just US$35m after the constellation is completed, freeing up cash to repay debt.
"Effectively, the company is marketing this deal as a roughly one-year bridge to free cashflow that its banks aren't willing to give them at this point," Baird analyst Matt Swope wrote in a note to clients seen by IFR.
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