Media/Telecom: Banks Give Iridium a Much-Needed Boost

Iridium LLC, a global wireless communications company, can breathe a little easier as it nears completion of its $5 billion satellite network.

The Washington-based company, a joint venture of Motorola Inc., Sprint Corp., and other international telecommunication firms, locked up enough financing last year to get to the point of generating revenues. With 63 of 66 planned satellites launched, the company expects to provide wireless voice, fax, and paging services off its network in the fourth quarter.

Iridium has relied on a small group of commercial and investment banks, including Chase Manhattan Corp., Barclays Bank PLC, and Merrill Lynch & Co., to help it raise capital in a bevy of markets. But it has not always been easy.

Because its technology is viewed as speculative, Iridium has endured extensive due diligence for loans and whopping junk bond rates. And investors' interest in the company has not always matched expectations. Iridium canceled a $350 million debt offering in 1995 due to lack of demand, and a 1997 bond issue had to be restructured.

Nevertheless, Iridium completed a flurry of deals in 1997. In June the company issued $192 million of class A stock with Merrill as leader. That offering helped raise investor awareness for three high-yield bond issuances led by Chase and Merrill, totaling $1.1 billion: $500 million at 14%, $300 million at 13%, and $300 million at 11.25%. Then in December Iridium turned to Chase and Barclays to co-lead a $1 billion credit facility.

Roy Grant, vice president and chief financial officer of Iridium, spoke with American Banker about the company's banking relationships.

How did your relationship with Chase and Barclays evolve?

GRANT: We were looking for someone who had telecom experience, project finance experience, and tremendous syndication capabilities. We wanted at least one U.S.-based bank, with broad distribution capabilities, and one international bank to bring in banks from the rest of the world.

We ended up with two global arrangers for putting together our bank credit facility: Chase and Barclays. Barclays tended to focus on the technical conditions we needed to meet. We looked to Chase for its reach in syndications.

To lock up financing, what were some of the challenges you faced?

GRANT: We had to refine our story and do a lot of due diligence work for the banks. And that due diligence covered technical areas as well as marketing and business plans. Ultimately, Chase and Barclays became really comfortable with our story. That relationship has continued beyond just arranging the bank credit facility.

What makes you choose a high-yield bond over a leveraged loan?

GRANT: Our capital needs are so extensive we can't find all of our funding in one marketplace. When we looked at the different alternatives, we truly believed that the bank market offered us the lowest-cost source of capital and the most flexibility in terms of repayment.

It came at a price, though. The bank loan continues to have the most restrictive terms and conditions upon us. The flexibility it offers us is we can pay back those funds at any point in time we want to.

How did the high-yield bond issues come about with Chase?

GRANT: Once Chase got comfortable with our story, they offered to us a full financing package, or one-stop shopping. There is a symbiotic relationship there. It helped us obtain financing, and that was important. But it also really established Chase as a player in the high-yield marketplace. Prior to our deal, Chase had done a number of transactions, but no really large one.

Do you think one-stop shopping is the banking relationship of the future?

GRANT: I think so. It's certainly easier for us to deal with one party that provides a lot of different services. We like the commitment on the part of the bank to our company. Once having established that commitment, it is helpful in being able to access various markets.

Given your relationships with banks like Chase, Barclays, and Merrill, do your find it difficult to forge new bank partnerships?

GRANT: Certainly there's a level of comfort we have with Chase and Barclays that makes it easier to discuss other potential financial opportunities from them-rather than pursuing an entirely new banking relationship.

So do you see a lot of these relationships concentrated in the hands of a few banks?

GRANT: For a project with the magnitude and risk characteristics of a company like ours, you are going to have some key bankers early on in the process-the believers you might say-that are really going to be the parties that help you out and get you to commercial activation of your system. But in the long run, we'll diversify our sources of funding.

What will you be looking for down the road in terms of a relationship with banks?

GRANT: Over time we'll have people bring up ideas-new ideas, competitive ideas-and those institutions will end up getting rewarded for some of the ideas that they have. We will gradually expand the institutions that we deal with based on that.

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