Iridium's bank debt jumped to 45 from 28 last week following news that Motorola would have to pay $300 million of Iridium's debt. A court ordered early last week that Motorola would have to pay J.P. Morgan to satisfy a guaranteed part of an $800 million loan made to the now defunct Iridium when Morgan was still Chase Manhattan Bank. The payment of the $300 million, guaranteed by Motorola, will be spread across the $800 million credit, so holders of the bank debt will get back 37.5 cents on the dollar, plus 7.5 cents in interest, market players said. Bear Stearns was reportedly involved in the trades, but that could not be confirmed with officials there.
"This is a home run for [holders]," a dealer chirped after the decision. Dealers noted that most of the original lenders are out of the credit, and one player added, "Nobody thought the paper would jump into the mid-40s." The total volume of trading last week was small, roughly $10-15 million. Even though 45 is now the bottom, traders said there's been no bidding up on the paper yet because there is too much uncertainty. Dealers reported far more activity in the bonds over the week.
Calls to the company were referred to spokesman Scott Wyman, who referred inquiries to a company statement. He declined to comment further.
The Motorola statement says the company disagrees with the court's decision and believes there is sound base for an appeal. "It continues to be our position that there was no breach of contract by Motorola relating to Chase's decision to loan money to Iridium and that Motorola does not owe Chase the $300 million." A J.P. Morgan spokesman said the bank is pleased with the judge's decision. He declined to comment further.
Dealers said there still may be some feeling out for levels, as an appeal and other pieces of the puzzle are still in play. "There's still some risks," said a dealer. Along with Motorola appealing, Morgan is suing Motorola for the rest of the $800 million credit facility and Motorola still has lawsuits pending against it from Iridium bondholders.
The $300 million guaranty was part of an $800 million loan granted to Iridium in 1998, about eight months before the satellite phone company filed for Chapter 11. Motorola founded Iridium in 1991, before it was spun off as a public company. Morgan has alleged that Motorola officials misrepresented Iridium's revenues before the loan was issued. Iridium was a satellite system built to provide cell phone service virtually anywhere in the world. The company couldn't sign up enough customers and filed for bankruptcy in 1999.