Buried deep in the reams of documents filed in the U.S. Bankruptcy Court case of the satellite-phone pioneer Iridium in New York City is a time bomb. On Dec. 15, several banks led by Chase Manhattan Corp. will have the right to grab all of the company's cash. If they do so, it almost certainly will spell the end of Iridium, the 66-satellite engineering marvel dreamed up by Motorola Inc. more than a decade ago to let globe-trotting executives make phone calls from anywhere in the world. Without cash, Iridium won't be able to pay its employees or suppliers and probably will be liquidated.
There may be no last-minute Hollywood ending to this drama. Chase and the other banks have extended previous deadlines because they hoped that new investors would rescue the company. The most likely savior is wireless pioneer Craig O. McCaw, who is preparing his own satellite communications venture, Teledesic, for launch in 2004. Executives close to the reclusive Seattle billionaire say that he personally wants to cut a deal for Iridium--even after taking a controlling stake in ICO Global Communications Ltd., another bankrupt satellite venture based in London. But McCaw's finance people can't figure out how to make the numbers work. "There's still interest, but I just don't think it's going to happen," says a person close to McCaw.
McCaw could be posturing, of course, to squeeze Iridium's creditors into letting him buy the $5 billion satellite system as cheaply as possible. While existing shareholders aren't likely to get anything, creditors still could get some of their loans repaid or equity in the company. Most critically, McCaw needs to persuade Motorola to cut its fee for operating Iridium's network. Under current contracts, Motorola is supposed to receive more than $400 million annually--even though Iridium generates under $10 million a year in revenues.
Motorola has every incentive to cooperate. The company, based in Schaumburg, Ill., conceived of the satellite telephone system and then used its prestige to persuade investors around the world to raise the capital for it.
ON THE HOOK. But more than Motorola's reputation is on the line. If McCaw doesn't rescue Iridium, Motorola could end up on the hook. Some creditors are looking into whether they can collect from Motorola for what Iridium owes. For example, unsecured creditors want to know the circumstances under which Iridium sold $1.4 billion in debt securities and then paid Motorola $1.04 billion. According to documents filed in bankruptcy court, the committee of unsecured creditors believes its members "may have claims against Motorola in connection with its role and activities in Iridium's debt offerings." A Motorola spokesman says there is no basis for such a claim.
For McCaw, Iridium's appeal is that it already is operating, so he can get going in satellite communications immediately. ICO is expected to start offering cheaper satellite telephone service worldwide in April, 2001. And in 2004, McCaw is slated to roll out Teledesic, a $10 billion system designed to deliver high-speed Internet connections anywhere in the world. Iridium also fits with other McCaw interests, such as Nextel Communications Inc., which sells wireless service to the businesspeople who might sign up for Iridium.
Most important, rescuing Iridium would help restore faith in satellite ventures in general, making it easier to raise capital for ICO and Teledesic. "Craig sees saving [Iridium and ICO] as important for the satellite industry," says a McCaw executive. But if McCaw can't get what he wants from Motorola, he may have to settle for saving just one.