Chase Manhattan Corp. has told Iridium LLC that its $800 million syndicated loan is in default, according to a federal filing made Tuesday by the satellite phone company.
In a July 29 letter to Motorola Inc., Iridium's largest shareholder, Chase asserted that a "triggering" event occurred under the credit agreement, which resulted in an "event of default." The filing does not say what the "triggering" event was.
The decision by Chase and other lenders in the syndication group effectively ends a four-month period in which Iridium was granted multiple postponements in repayment of the loan.
Chase, Barclays Bank PLC, and others in the syndicate did not declare the loans to Iridium in default during that time, even though the company was unable to meet its repayment schedule.
Now that Chase and the lender group will no longer extend that forbearance, a new conflict has developed, according to a filing by Iridium with the Securities and Exchange Commission.
Chase said that because of the triggering event, Iridium is required to demand that Motorola guarantee $300 million of Iridium's borrowings under the facility, and that Iridium has failed to make such a demand on a timely basis.
Iridium disputes that claim, saying this is "an apparent attempt (by Chase) to preserve a position."
Iridium also said that both it and Motorola believe that no "triggering" event has occurred, and that therefore Iridium was under no obligation to demand a guarantee from Motorola.
But in a separate filing Tuesday, Motorola, which owns 18% of Iridium, said it may be forced to take a special charge in the third quarter to offset either the cost of restructuring Iridium debt or losses if Iridium files for bankruptcy protection.
Iridium, with lower-than-expected subscriber rates and revenues, is struggling under a $2.25 billion debt load, including the bank loan. The Bermuda-based company has hired Donaldson, Lufkin & Jenrette to aid in a restructuring.
Last month the company defaulted on a $90 million interest payment to bondholders. Now it appears Iridium will try to offer those bondholders a combination of new bonds and equity to avoid bankruptcy.
If the creditors accelerate the loans because of a default, Iridium also would be in default under terms of its $1.45 billion of senior notes.
Iridium said it believes that the Chase letter will not have a significant effect on the continuing restructuring negotiations among Motorola, Iridium, and lenders.
The restructuring of Iridium's debt is expected to be a hot issue Tuesday at Motorola's annual shareholder meeting.
Rumors suggest that Motorola would consider investing another $400 million in the satellite phone operation if bondholders agree to exchange $1.5 billion in debt for a 25% equity stake.
