GLOBALSTAR REORGANIZES FINANCES BY SUSPENDING PAYMENTS
Financial problems of Globalstar accelerated Tues. with its announcement that it had “indefinitely suspended” principal and interest payments on all of its debt to give it enough cash to fund its operations into 2002. Globalstar, whose “shaky position” in industry may have been hurt by re-entry of Iridium into market, according to analysts, said it would save $400 million cash this year by withholding payments on its bank, debt, senior notes, vendor financing agreements and dividend payments on its preferred stock. Analyst suggested move “pushed the company one step closer to bankruptcy.” Decision will enable Globalstar to preserve “sufficient cash” to fund operations into next year. Earlier, it had said it had enough money to last until 4th quarter 2001. Company said move would give its partners additional time to implement new marketing strategy. Some analysts have predicted Globalstar would end up in bankruptcy within 6 months.
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Globalstar said it was continuing to meet its obligations to employees, customers and trade suppliers and CEO Bernard Schwartz said in conference call with investors and media he didn’t anticipate layoffs or interruptions in phone service. Company said it had $195 million at end of 2000 to meet obligations, but missed $45 million in interest and principal payments due Mon. on Loral credit facility and under its vendor financing agreements with Loral and Qualcomm. Loral owns 38% and Qualcomm 9.5% of Globalstar. Loral said Globalstar’s actions would reduce its 2001 cash receipts from company by $140 million and it also planned to write down its Globalstar investment as 4th-quarter charge. Qualcomm, which has $610 million in net assets tied up in Globalstar, said it would have “a small negative impact” on operating earnings in its fiscal first quarter that ended Dec. 31.
Schwartz voiced confidence that his company could reverse fortunes, but expressed disappointment at results thus far. Globalstar has spent $4 billion on satellite telephone service, but had attracted only 31,200 customers through first week of Jan. “There’s no question that performance up to this date hasn’t been what we wanted it to be,” Schwartz said: “We believe the actions we have just taken give us the time required to allow the service providers to aggressively add fuel to their new marketing efforts and give us the revenue growth momentum that we need.”
Globalstar has added Blackstone Group as its financial adviser to help restructure debt and identify funding opportunities. Blackstone is expected to prepare new business plan for company in next 6 weeks, Schwartz said. Company also is banking on new high speed data applications being developed by Qualcomm and Globalstar engineers. In public display of confidence, Qualcomm CEO Irwin Jacobs said new Globalstar offerings would “open up vertical markets” for company. He said “quality, service and reliability” of Globalstar system had been “exceptional” and Qualcomm expected company to “continue to operate into future.”
News of Globalstar’s finances took toll on Wall St., where shares in Loral stock plummeted 45% to $1-3/64 on Nasdaq volume of 13.9 million shares after dropping as low as 15/16. Standard & Poor’s cut its corporate credit and preferred stock ratings on Globalstar to D from CC. Qualcomm stock was down $2.73 at $69.08. ING Barings analyst David Kestenbaum said announcement was “pretty much as expected. We knew this was coming.” Satellite analyst William Kidd of C.E. Unterberg Towbin said Globalstar management “likely” made decision “after realizing that a reorganization had become inevitable” and operating with additional cash and reorganization plan would be “preferable to being in the same situation without either.” Kidd said he expected company would continue to operate, but with different owners: “We believe that Globalstar has built a valuable business that will continue to operate indefinitely, but as a restructured entity. Unfortunately, the company’s slow business development made it incapable of servicing its existing capital structure.” He also said market would respond “favorably” to news that Loral had decided not to expend more resources on Globalstar project.