MSS operator Iridium filed an amended registration statement at the end of March to adjust the amount the company will look to potentially raise from US$150m to US$225m.
The financing is connected to the company’s ongoing renegotiation of covenants on…
MSS operator Iridium filed an amended registration statement at the end of March to adjust the amount the company will look to potentially raise from US$150m to US$225m.
The financing is connected to the company’s ongoing renegotiation of covenants on its US$1.8bn credit facility that is guaranteed by French export credit agency Coface. The facility is being used to fund the construction of Iridium’s second generation constellation NEXT, which has a total estimated cost of US$3bn.
Iridium had initially submitted an S-3 prospectus in an SEC filing in early February stating that it may look to raise US$150m through either debt securities, common or preferred stock or warrants.
It has now increased this amount by US$75m, prompting a stinging letter from 4.3% shareholder Avenir Corp.
Peter Keefe, president of the investment management firm, argued that the “dramatic upsize demonstrates once again how challenged Iridium’s management and board of directors finds itself in accurately forecasting the company’s capital requirements”.
He continued: “The company has consistently underestimated its capital requirements and as a result, is once again being required by a nervous banking group to raise equity – for the second time in 18 months.
“The first equity raise was needlessly dilutive and the terms were harsh. Against our counsel, the mix of securities for the new offering does not include a rights offering, which would permit your current shareholders to avoid further dilution.”
Back in September 2012, Iridium raised nearly US$100m through a private offering of one million shares of preferred stock.
Keefe claims that Iridium has argued that rights offerings were not common in the US and were not the preference of its shareholders, something Avenir disputes.
Calls for a sale
And Keefe goes further than just urging Iridium to undertake a discounted rights offering. He argues that the company should potentially consider a sale.
“It is clear that Iridium’s board has lost the confidence of its shareholders and the accumulated evidence strongly suggests that it is not equal to the task of managing its overleveraged balance sheet while protecting per share value.
“It is time for the company to seek outside help regarding alternatives ranging from a minority investment by a strategic partner to the sale of the entire company with the objective of maximizing per share value for existing shareholders.”
However, speaking to SatelliteFinance at Satellite 2014 in March, Iridium CFO Tom Fitzpatrick said the company had yet to decide the structure of the financing and that the debt negotiations were progressing well.
“We are in advanced negotiations with our Coface lenders,” said Fitzpatrick.
“We are making progress and expect to come to a resolution in the next couple of months. We also expect there to be a financing of some sort as part of the package. We haven’t said what the nature of the financing will be. We are a public company and have wide open access to all flavours of financing and we’ll do what’s right for Iridium in conjunction with the lenders.”
Iridium, though, has been conducting investor roadshows for the financing.
One of the ongoing concerns for Iridium has been selling the long term NEXT business plan to its shareholders. The past couple of years have been particularly capital intensive, with US$404m spent in 2013, as it pays for the next gen system. So the company has sought to emphasise the huge potential EBITDA upside once it is fully launched and operational.
Bryan Hartin Iridium’s EVP of sales and marketing, explained to SatelliteFinance: “The approach is that it is a long term story. When we finally get to the point where we have launched the new constellation in 2017, then we’ll really get back to a much more normalised level where our capital expenditure is down to around US$30m a year for the life of the constellation. That’s a very appealing vision.
“Truly the financial picture changes when we are not having to invest in the satellites, the launches and building up the ground network.”
The company’s shareholders, including Avenir, will have a chance to discuss this plan at Iridium’s annual shareholder meeting on 22 May.
