Iridium LLC

Reasons for failure

GROUP 4
PROJECT FINANCE.

No, It as i! amount of "e#t. A de#t o$eran!.

As %er e&i#it ', te interest (o$era!e ratio of ).*+ su!!est tat

interest amount to #e %aid ,as more tan te E-IT !enerated #.
te (om%an.

-oo/ $alue of de#t to total (a%itali0ation ,as mu( i!er tan

te industr. a$era!e

As te estimated (ost of te %ro1e(t is mu( i!er ,i( for(ed

te (om%an. to !o for i!er amount of de#t

Te. issued #onds at $er. i! %remium .ields (om%ared to

mar/et2E&i#it 34 -aa rated (or%orate #ond .ield 5 *.+67
89 .:eter Iridium raised a ri!t
amount of de#t;

:e #elie$e tat none of te teories amon! %ortfolio teor., o%tions

teor., "e#t $s E<uit. teor. su%%orts te /ind of de#t raised

A!en(. (osts ,ere i! as Ris/ =iftin!, "e#t o$eran! resulted in a i!

de#t o$eran!.>ana!ement ,ent on raisin! de#t ,itout Ris/ (al(ulation.

O%tions teor. loo/s a%%ro%riate #ut if ,e loo/ at te es(alatin!

(ommitment of >otorola to,ards te %ro1e(t, it !i$es a di?erent o%inion
tat >otorola is seriousl. dedi(ated to,ards te %ro1e(t

:e #elie$e tat E$en tis amount of de#t (ouldn@t #rin! in dis(i%line. CFO
and CEO resi!ned and fe, a!en(. related issues ,ere %ersistin!

Ta& rate ,as onl. 93A so !oin! for u!e de#t ,ill not #e a !ood ta& sield

Bi! #an/ru%t(. (osts #e(ause of i! de#t in$ol$ed.

:i( teor. su%%orts tis /ind of
de#t;
9CCD
=old E+6' million
of ten .ear #onds
,it ,arrants
*3) million #an/
fa(ilit. F*.*3A
9CC*
-onds '))m F 96A
,it ,arrants
-onds F94A
,itout ,arrants
-onds 6))m
F99.+3A
63)m term loan
4))m re$ol$in! LC
9CC'
63)m #ond
F9).''A
+)))
4*3m term loan
F*.*3A
+*3m (redit fa(ilit.
F*.*3A
'))mF9).3A
8+7 "e#t C.(le
8+7 "e#t C.(le

After te initial in$estment from s%onsors Iridium ,anted to raise

mone. from -ond mar/et #ut #e(ause of teir lo, ratin! te
e?e(ti$e .ield ,as turnin! to #e around +3A so te. de(ided
a!ainst te same

Te. de(ided to rise mone. E+6'm $ia Insider de#t

=o te. ,ent for -an/ loan Fa(ilit. ,i( ,as relati$el. (ea%er
F*.*3A #ut ad (o$enants of Re$enue tar!et atta(ed to it

After te su((essful laun( of IPO, te. ,ent for E'))m i! .ield

de#t F 96A and 94A

:en te #ond mar/et im%ro$ed furter te. (ould !et E6))m at

e$en #etter rates of 99.+3A and a furter #an/ (redit of E*3)m

-e(ause of failure to !et e&%e(ted (ustomer #ase, te. ad to

rene!otiate loans

-ut #e(ause tere (osts ad risen to ED# from e&%e(ted (ost of

E9.D3# te. (ould ne$er re(ou% from e&e(ution and strate!.
failure and ended u% #ein! #an/ru%t

A((ordin! to us te order and /ind of de#t tat Iridium too/ ,as

ri!t, #ut #e(ause of te multi%le failures on e&e(ution and
strate!. le$els and too i! re$enue estimation te (as
!enerated from #usiness ,as ne$er a#le to re%a. te de#t ta/en
8uestion 64 :eter teir se<uen(e of raisin! de#ts ,as
ri!t;
Sequence of Debt Raising:

9CC34 6)) million Gero Cou%on -onds and (an(elled in =e%@9CC3

A%ril 9CCD4 =old +6' million 9)H.r #onds ,it ,arrants

Au!ust 9CCD4 *3) million #an/ fa(ilit. 2(lass 9 ,arrants #. >otorola7

9CC*4 6 tran(es of 9.'#illion

9CC*4 9 #illion =e(ured #an/ fa(ilit.

Jul. 9CC*4 + tran(es of ')) million

"e( 9CC*4 63) million term loan, 4)) million re$ol$in! LOC

=e% 9CC'4 +3) million in re$ol$in! LOC

>a. 9CC'4 63) million of =eries " notes

"e( 9CC'4 4*3 million term loan and +*3 million re$ol$in! LOC

"e( 9CC'4 *3) million in e&(an!e ,arrants and (as %a.ments

"e( 9CC'4 ')) million in se(ured (redit fa(ilit.

8uestion 64 :eter teir se<uen(e of raisin! de#ts ,as
ri!t;

"urin! resear(, Iridium ,anted to a$e a Inan(ial mi& of E9.D #illion in e<uit. and E9.' #illion
in de#t. -ut durin! te initial %eriod, it ,as #etter to a$e e<uit. fundin! rater tan i! de#t
2dJKL3)A7. >a. #e tis ,as a ,ron! %ro%ortion of de#t

"urin! s.stem de$elo%ment, Iridium issued #onds, notes in tran(es and raised de#t trou!
re$ol$in! line of (redit. It is a !ood time to raise de#t, #ut te i! .ield on notes and #onds
and earl. maturin! of re$ol$in! line of (redit (reated te %ro#lem. Re$enue %ro1e(tions ,ere
o$er o%timisti( and e&e(ution failures ,eren@t tou!t o? ,ile raisin! te de#t. Ben(e te Ris/
asso(iated ,it i! de#t raisin! ,ere i!nored. Pro1e(t (.(le su!!ests tat de#t sould #e
raised in =ta#le %ase and not in earl. sta!e of an un%ro$en Te(nolo!.

"urin! Commer(ial Laun(, Iridium raised te funds from #an/s ,it (ommitments of
%erforman(e. -ut as it ,as not !ettin! te e&%e(ted (as Mo,s, it missed te s(edule interest
%a.ment deadlines. Also, resi!nation of CFO and CEO indi(ates internal (onMi(t of interest
#et,een te !oals.