Investment bankers at Donaldson, Lufkin & Jenrette are under the gun in their effort to restructure $2.25 billion of debt for Iridium LLC, the global wireless phone provider.
DLJ and Iridium face a June 30 deadline imposed by bank lenders. Iridium announced this week that it had received a 30-day postponement on payments for an $800 million highly leveraged loan that was syndicated last December by Chase Manhattan Corp. and Barclays Bank PLC.
John Richardson, Iridium's chief executive officer, said that lenders are being given an active role in reshaping the company.
"We will continue to work with our creditors, Motorola, and our other strategic investors to identify the financial strategy required for commercial success," Mr. Richardson said.
Should DLJ fail to restructure the debt, bankers could force Iridium into involuntary bankruptcy.
Iridium was forced to the negotiating table with its creditors after it failed to meet covenants of the loan agreement-less than four months after the loan was syndicated at the end of 1998.
Specifically, Iridium was required to have 53,000 subscribers to its service by May 31. At the end of March the company reported only 10,300.
The postponement has put Iridium's bondholders in the lurch. Should Iridium eventually go bankrupt, the bank loans would be paid first, because the loan is considered senior debt. It is unlikely bondholders would be compensated the $1.45 billion they are owed.
Romeo Reyes, a debt analyst with Jefferies & Co., said he expects DLJ and Iridium to make bondholders an offer in which they would get new bonds, stock, or a combination of both.
"They're going to come up with something, and we're going to know soon," Mr. Reyes said.
Investors are not thrilled with the prospects. Iridium bonds are trading at 20% of face value, he said. The bank loans are trading between 75% and 80%.
Iridium is one of the most unusual financing stories in recent memory. While the telecommunications industry has been a good bank customer, Iridium stands out for the amount of leverage extended to it.
The company, founded by a handful of Motorola Inc. engineers, hoped to provide wireless phone, fax and data service everywhere on the planet via an all-satellite network.
Iridium got a $2.5 billion cash infusion from Motorola and Japan's Kyocera, and borrowed $2.8 billion to launch its 66-satellite network. Total cost of the project was $4.5 billion.
At the center of the financing was the term loan which is set to mature in December 2000. Lenders including Bank One Corp., Bank of America Corp., Deutsche Bank, and Merrill Lynch & Co. were to be paid the London interbank offered rate plus 400 basis points.
But almost as soon as the loan was completed, Iridium began to unravel. First, neither Motorola nor Kyocera could design a phone that would weigh less than one pound. One model offered initially did not work. Then production of the phones fell behind schedule.
Iridium has been on the ropes since it reported first-quarter losses of more than $500 million. Analysts say the Hamilton, Bermuda-based company has also been hampered by bad marketing.
Stock in the company has fallen recently to $8.25 a share on the Nasdaq, from a high of nearly $62 in July 1998. Iridium shares had reached $20 on March 15.