Globalstar Suspends Principal, Interest Payments

Globalstar LP, San Jose, Calif., has indefinitely suspended principal and interest payments on US$3 billion worth of debt, as well as stopped dividend payments on its preferred stock, to make sure it has enough cash to continue operations into 2002. The suspension of debt payments began when Globalstar withheld a combined US$45 million owed to Loral and Qualcomm. Globalstar said it would save US$400 million for the year 2001 from the suspension of payments on its funded debt, including its credit facility, vendor financing agreements and senior notes. Globalstar had US$195 million cash on hand, as of Dec. 31, 2000, which should be sufficient to pay employees, customers and trade suppliers on an ongoing basis. There are no plans for layoffs.

Globalstar said its decision to suspend the debt payments ensures uninterrupted continuation of Globalstar's satellite-based communications service and further deployment of services around the world. The suspension of interest payments also gives its partners additional time to implement new marketing initiatives, including new vertical market sales programs and expanded marketing of data services.

Globalstar’s phone business generated US$1 million in the third quarter of 2000. Only 31,200 customers have subscribed to the wireless service. Globalstar’s venture with InFlight Network for high-speed broadband data service to airplane passengers was expected to boost subscription, but Boeing's competing plan and airlines' demands for slices of the future revenue stream have reportedly delayed deals. Globalstar is pursuing the U.S. military as a major potential customer. Military contracts with the U.S., and other nations remain under discussion. Globalstar is working on improvements in its service, including more power and longer-lived handset batteries.

It has been estimated that Globalstar needs at least 1.5 million subscribers to cover its operational costs, investments and to service its debts. In its current situation, only having to cover its operational costs, Globalstar probably only needs 200,000 to 300,000 subscribers to achieve a neutral cash flow.

Globalstar’s debt suspension decision was endorsed by Loral Space & Communications and Qualcomm, two of Globalstar's top investors and creditors owed a combined US$1.3 billion. The remaining US$1.7 billion is owed on publicly traded debt securities. Loral has invested about US$1.3 billion in Globalstar and owns about 39 percent of the venture and 27% of its debt. Loral will continue investment programs such as funding the construction of three Globalstar satellites to be launched in 2002. Loral stated that Globalstar's action would mean US$140 million less cash for Loral in 2001, and that Loral would write down its Globalstar investment in a onetime, noncash charge for Q4 2000. Loral also said Globalstar's debt action relieves any of its partners of any “necessity to provide additional funding to Globalstar in 2001.” Qualcomm said that it would put aside a loss reserve against its Globalstar-related assets and expects that it would mean a small negative impact on earnings for the quarter ended Dec. 31. Qualcomm expects to writeoff “a significant portion” of its US$610 million in assets related to Globalstar.

Globalstar LP has retained The Blackstone Group as an adviser to assist in restructuring the company's debt and identifying new funding opportunities. During the next six weeks Blackstone Group will be devising a new business plan that would hopefully satisfy everyone.

The recovery plan could be derailed by bondholders seeking to recoup their investments by putting in claims for Globalstar’s ready cash. Such an action could throw the company into bankruptcy. It would take three bondholders to put Globalstar into bankruptcy. Bernard Schwartz, chairman and chief executive officer of both Globalstar LP and Loral Space & Communications Ltd. said, “We hope all bondholders will recognize the actions we are taking are designed to improve the situation. I would say an action here to cause bankruptcy before Blackstone has an opportunity to revise our plan would not only be premature but would be damaging to all our constituencies, including the bondholders. I think the best way for bondholder and shareholders to benefit long term is for the plan to have a chance to work.”

SPACEandTECH Digest is a weekly roundup of the latest industry news of interest to the space professional. SPACEandTECH Flash! is an internet push service offered by Andrews Space & Technology to bring the latest on orders, launches, and important breaking news to your desktop. SPACEandTECH Digest and SPACEandTECH Flash! are part of the Andrews Space & Technology www.spaceandtech.com website, a website designed to serve the information needs of the space industry.

If you would like to subscribe to the SPACEandTECH Flash! (currently a free service), contact the www.spaceandtech.com Editor-in-Chief, Joe Hopkins, at editor@spaceandtech.com