The company, which has faced a series of significant setbacks this year and defaulted on more than $1.5 billion in loans earlier this week, will seek a "comprehensive financial restructuring" through a voluntary Chapter 11 filing in U.S. Bankruptcy Court in Delaware.
Under Chapter 11, a company continues to operate while it draws up a debt-repayment plan under court supervision. Iridium provides global mobile telephone service through a network of 66 satellites.
Following the news, stock in Iridium World Communications plunged another 28 percent to 3.0625 in midday trading today. Shares have traded as high as 49.875 and as low as 4.25 in the past 52 weeks. Iridium shares peaked in the low 70s in May of last year.
Despite Iridium's struggles, many analysts believe the market for satellite phone services is a lucrative one. Market research firm Dataquest expects more than 10 million satellite voice service subscribers by 2003. As such, a handful of would-be competitors are readying similar satellite services even as Iridium files for bankruptcy. Globalstar and the London-based ICO are among the leading challengers to Iridium's less-than-successful service. Iridium ended March with only 10,000 customers.
Iridium said its major stakeholders, which includes Motorola, support its financial plan. Iridium's creditors already had granted the company several extensions for meeting certain revenue and subscriber targets. Iridium failed to meet most of those goals.
"The action is the most efficient way to conclude Iridium's restructuring negotiations," John Richardson, Iridium's chief executive, said in a statement. "We are confident that Iridium will emerge from this process as a stronger and more vibrant company."
Motorola said it will continue its operational support of Iridium's satellite-based phone system. And, based on the progress so far, Motorola is "optimistic" that a restructuring plan can be finalized within 30 days, the company said in a statement.
Earlier today, a group of bondholders separately filed an involuntary Chapter 11 bankruptcy petition against the cash-strapped company. The group of bondholders holds about 25 percent of Iridium's $1.45 billion outstanding senior notes.
"We have been in active negotiations with the company for the past month. Despite the best efforts of the parties involved, consensual agreement could not be reached on a restructuring plan," Talton Embry of Magten Asset Management Corporation, a member of the bondholder group, said in a prepared statement.
Iridium could not be immediately reached for comment. Motorola, which owns 18 percent of Iridium, also could not be reached. The bondholders' bankruptcy petition was filed in the United States Bankruptcy Court in the Southern District of New York.
Reuters contributed to this report.