Could it Be Curtains for Globalstar?

Tuesday, April 03, 2001
Mobile satellite telephone company Globalstar L.P. said on Monday it recorded a net loss of $3.8 billion in 2000 and it could seek bankruptcy protection if it cannot execute a restructuring plan.

The company warned in an annual filing with the U.S. Securities and Exchange Commission that its restructuring plan may fail if it conflicts with certain restrictions under existing agreements or if it cannot forge an accord with its creditors.

Globalstar is a partnership that was formed in November 1994 by satellite firm Loral Space & Communications Ltd. and cellular telecommunications company Qualcomm Inc. Loral owns about 38 percent of Globalstar L.P. Globalstar Telecommunications Ltd., the public Globalstar entity, owns more than 40 percent of the business. And Qualcomm and several other companies own the remainder.

Globalstar, which had said earlier this year that it would stop payments on its debt and preferred stock dividends to save cash, is the third satellite company to run into trouble along with Iridium, the pioneer of satellite-based phone services and ICO Global.

Globalstar's spokesman stressed that the warning about bankruptcy was precautionary and the company was not exploring a bankruptcy plan at this time. A high level official of a top satellite consulting firm, predicted the worst for the satellite company "I would expect it to be in bankruptcy. It's just a matter of time."

He added that there were several lawsuits pending against the company.

According to its own filings, Globalstar has been the target of at least two class-action lawsuits already this year. The first was filed by bondholders on Feb. 20 alleging that Globalstar violated agreements when it suspended interest payments on bonds.

The class action lawsuit on behalf of Globalstar Telecommunications shareholders alleged that Globalstar and its executives made misstatements or failed to state material facts about the business and its prospects.

It has also been reported that there were also at least two lawsuits by individual debt holders against Globalstar, and a judge was expected to hear the cases in mid-April.

"The judge could throw it into bankruptcy proceedings based upon the fact that there were so many debt holders that aren't satisfied," the satellite consulting firm official said.

Even if the judge did not do so, the company still has a rocky road to recovery because the debt holders and the company have to agree on a restructuring plan, he added.

Globalstar also said in its filings that it recorded a $2.9 billion non-cash charge in the fourth quarter of 2000 related to the carrying value of the Globalstar system including spare satellites, unsold equipment and other assets.

Although it did not release its complete fourth-quarter results, the company said its fourth-quarter net loss including the charge was $3.17 billion. Globalstar said its fourth-quarter results reflected minimal voice traffic growth.

The company said it was having problems with slower-than-expected consumer acceptance, insufficient marketing efforts by service providers, delays in selling gateway equipment to new or existing service providers, and delays in implementing roaming services.

Globalstar reported a net loss of $3.8 billion in 2000 hurt by the impairment charge combined with operating losses and other expenses. The portion of the loss applicable to the Globalstar Telecommunications Ltd. is $2.1 billion, or $20.85 a share.

The rest of the loss will be recorded as charges by its partners including Loral and Qualcomm. Globalstar's spokesman said both Loral and Qualcomm have already recorded related charges.

Globalstar reported net revenues of $1.1 million in the fourth quarter and $3.7 million for the year; the company said it was currently reviewing recommendations for business alternatives presented by financial advisor Blackstone Group, which it had hired earlier this year.

Globalstar ended the year with about $197 million in cash, which it believes to be sufficient to continue its operations through 2001.

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