Globalstar Files for Bankruptcy

Globalstar L.P. reached agreement with several of its major creditors to restructure the company's debt. In order to facilitate the timely completion of the restructuring, Globalstar, on February 15, filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court in Delaware. The reorganization is likely to occur over a period of months. Globalstar listed US$573.4 million in assets and US$3.34 billion in debts in the Chapter 11 filing. The company has approximately US$46 million of cash on hand. The final restructuring will likely require some new investment to provide enough funds to carry the company through to a cash flow breakeven point.

Normal company operations and customer support will continue uninterrupted while Globalstar operates under Chapter 11 protection. Globalstar has 66,000 customers.

Globalstar was created in 1994. Primary partners in Globalstar include Loral Space & Communications (38%), Qualcomm Inc. (6%), China Telecom, DaimlerChrysler Aerospace and Vodafone Group PLC (9%). Globalstar Telecommunications owns a 42% stake. The reorganization plan also calls for the cancellation of all existing partnership interests in Globalstar L.P., including partnership interests held by the publicly traded Globalstar Telecommunications Limited.

The proposed restructuring plan calls for the establishment of a new Globalstar company which will take ownership of all of Globalstar L.P.'s existing assets, including its satellite constellation and related operations. In addition, the new company will acquire all equity stakes in three of its service providers: Globalstar USA, Globalstar Caribbean, and Globalstar Canada; which were originally held by Vodafone Group Plc and Loral Space & Communications. Acquisition of equity in Globalstar USA and Globalstar Caribbean are subject to FCC and other regulatory approvals. Under this plan, the new company will initially be owned by Globalstar L.P.'s existing bondholders and other unsecured creditors, with the option later to issue additional shares for sale to gateway operators outside of the U.S. and Canada who may wish to invest in the new company. The restructuring plan also contemplates a rights offering to common shareholders in Globalstar Telecommunications Limited and to Globalstar L.P. creditors which could give them the option to purchase shares in the new company. Officials have not discussed changing the new company’s name.

Shareholders in Globalstar Telecommunications Ltd., which sold stakes in Globalstar to public investors, are unlikely to realize any value for their shares. Public investors eventually might be given an opportunity to buy shares in the new Globalstar.

Globalstar defaulted, in early January 2001, on both a vendor financing facility worth nearly US$600 million from Qualcomm and a credit facility worth US$500 million from Loral. Loral took a US$907.8 million charge in the fourth quarter of 2000 to write down the bulk of its investment in Globalstar. Loral has invested more than US$1.3 billion in Globalstar since the early 1990s and remains a creditor. Loral is owed a total of around US$770 million under various agreements, and is listed as the company's second-largest unsecured creditor. Bank of New York is listed in the filing as Globalstar's largest unsecured creditor, representing bondholders owed around US$1.45 billion. Loral’s satellite-manufacturing unit, Space Systems/Loral of Palo Alto, Calif., provided the satellites for the Globalstar constellation. Qualcomm Inc. manufactures Globalstar's phones.

In 2001 Globalstar faced a number of lawsuits related to its performance. Some bondholders filed a class-action suit against Globalstar in February of 2001, demanding payment on bonds due in November 2004. Globalstar has petitioned to dismiss that suit. A subsidiary of telephone manufacturer Ericsson has also filed arbitration claims against Globalstar, demanding US$64 million under two phone handset purchase contracts it claims were not fulfilled.

Globalstar's informational filings with the Court are available to the public at the office of the Clerk of the Bankruptcy Court, 824 Market Street, Wilmington, DE 19801 (phone: 1-888-667-5530). The filings are also available electronically, for a fee, through the Court's Internet website at http://www.deb.uscourts.gov (Case Nos. 02-010499, 02-010501, 02-010503, 02-010504).

Copyright 2001 - Andrews Space & Technology
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