Although the company will have more time to make good in the eyes of its creditors, Iridium still faces the challenging task of meeting certain revenue targets and subscriber goals--and a looming interest payment deadline on its high-yield bonds.
The international mobile phone service provider has had difficulties signing up customers for its costly satellite phone and paging service, and has fallen short of prior subscriber target levels. Likewise, the company has been in danger of defaulting on its loans since early this year.
Iridium already received two previous 30-day extensions when the company fell short of expectations. The company, which ended March with more than 10,000 customers, must have at least 27,000 satellite phone customers by August 11 under today's revised bond covenants.
The extensions, analysts said, hang over Iridium as a constant incentive to get back on track--allowing lenders to effectively keep the company on a short leash.
"It's so that if at any point the bankers don't feel comfortable, they have a mechanism for backing out. It's a form of control over the process," said William Kidd, an analyst at C.E. Unterberg, Towbin. "This would be the last, or next-to-last extension in our opinion. I don't think this can go on much longer."
Separately, Iridium has a $90 million bond payment due July 15, a date analysts said may prove to be significant. The company has a 30-day grace period to make the bond payment, making mid-August a critical period, said Marc Crossman, vice president of research at J.P. Morgan Securities.
Missing a payment would be more costly than missing target goals, he said. Crossman has an "underperform" rating on the stock.
Iridium conceivably could be forced to file for bankruptcy protection if it cannot make the $90 million payment--Iridium posted revenue of $186,000 in 1998--and if the company fails to reach an agreement on a financial restructuring.
Industry observers say bankruptcy is a last-case scenario, and one that nobody wants to see happen. "Obviously all the parties are trying to stay out of bankruptcy," Crossman said.
"If they [had been] called into default [today], it would almost guarantee a bankruptcy scenario," Kidd said, noting that "bankruptcy remains a distinct possibility."
An Iridium spokeswoman declined to comment yesterday on the state of debt restructuring negotiations with the company's creditors. Large investors in Iridium include Motorola, Sprint, German conglomerate Veba AG, China Aerospace, and Italian telecommunications group Stet.
But, the company today said in a statement "Iridium intends to use the next six weeks to work with representatives of all its creditors to reach an agreement in principle on [Iridium's] financial restructuring."
"I'm personally skeptical that they'll reach an agreement [on payment restructuring] by July 15," Crossman said. "I just know that you have a lot of different parties involved, including bankers, bond holders, and investors, and getting them all to agree on one unified plan will take time."
After seeing its stock price plummet this year, the company has taken several strides recently toward improving its standing with investors.
Last week, Iridium announced new pricing and marketing plans aimed at adding customers. "We now have the time to implement our refocused marketing strategy," Iridium chief executive John Richardson, in a statement, said of the latest extension.
Iridium shares gained nearly 13 percent to 11.1875 in midday trading today. The stock has traded as high as 61.625 and as low as 4.9688 in the past 52 weeks.