Globalstar said it has indefinitely suspended payments on all of its funded debt, including its credit facility, supplier financing agreements and senior notes. Globalstar's actions mean its partners won't have to provide additional funding to the troubled company this year.
On a conference call, analysts asked why Globalstar should succeed when Iridium "crashed and burned." Both companies are perceived as having the same problem--an inability to find enough customers willing to shell out for high-priced phone services. CEO Bernard Schwartz said there are much fewer negatives for Globalstar, which offers data as well as voice services.
Concerns were raised that bond holders could send the company into bankruptcy. Schwartz said any such action would be "premature." He said investors should wait for news on the company's long-term financials from Blackstone, the company's adviser, which should detail results within six weeks.
Globalstar's problems will hit some of its partners. Qualcomm and Loral Space & Communications, a satellite-manufacturing company, both outlined the impact of Globalstar's debt woes.
Qualcomm, which has about $610 million in net assets related to its business with Globalstar, said it is still evaluating the effects of Globalstar's debt problems.
The company said it expects to incur a small hit to operating earnings in its first quarter ending Dec. 31, but remained comfortable with the analyst consensus estimate of 28 cents a share.
The company remained optimistic that current and new product offerings support an expanding market for Globalstar service. "The introduction of higher speed data modules, now in development, should open further data applications and vertical markets for the Globalstar system,'' said Qualcomm CEO Dr. Irwin M. Jacobs in a release.
Globalstar's main investor, Loral, said it will continue current investment programs, including funding the construction of three satellites due to be launched in 2002.
But Loral said the move will reduce its 2001 cash receipts from Globalstar by $140 million. As of Dec. 31, Loral's investment in connection with Globalstar's activities was about $1.3 billion, including 39 percent of Globalstar's equity and about 27 percent of its debt.
Loral intends to write down its Globalstar investment, including common and preferred equity, and debt, reducing it to a onetime noncash charge for the fourth quarter.