Globalstar Says It Is Poised To Reverse Six-year Slide
PARIS — Mobile satellite services operatoron May 21 sought to convince investors that the company’s six-year slide, which began in 2007 with satellite performance issues and more recently centered on financial solvency questions, is now at an end.
Covington, La.-based Globalstar still needs to come to definitive terms with its ground-network providers, Hughes Network Systems and Ericsson, and with its satellite prime contractor,of France and Italy, on payment schedules and other matters. Globalstar has said it would like to purchase a final six satellites, but has not yet signed a contract to do so.
Separately, the company must almost immediately finalize what it said is an already-negotiated agreement on payment terms for its $586.3 million bank loan, 95 percent of which is guaranteed by the French export-credit agency, Coface.
In a May 21 conference call with investors, Globalstar officials said Coface and Globalstar’s French bank consortium have agreed to the stretched-out loan repayment schedule in return for slightly higher annual interest payments; they said a formal agreement should be signed in the coming weeks.
The latest financial bullet that Globalstar dodged was the April 1 deadline to repay holders of about $71.8 million in notes. Missing that deadline raised the specter of a default leading to the collapse of the Coface financing. Globalstar has been negotiating nonstop with the note holders for the past couple of months to win weekly extensions of the deadline.
Globalstar said that thanks to its longstanding financial backer, Thermo — owned by Globalstar Chief Executive Jay Monroe and his family — it has paid off part of the notes due and reached an agreement with the remaining note holders. The agreement, concluded May 20, increases the interest rate on the notes to 8 percent from 5.75 percent per year but delays their due date to 2028.
Thermo is making a fresh cash investment of $85 million in Globalstar to secure the exchange of the 5.75 percent notes and the Coface restructuring.
“Thermo is fully committed to Globalstar’s success,” Monroe said during the conference call. “This latest financial commitment represents my personal conviction.”
Globalstar Chief Accounting Officer Rebecca Clary said during the call that the company’s current cash position is sufficient to fund the remaining investments needed in the second-generation constellation.
Monroe said that with 24 healthy second-generation satellites in orbit, and the last of these expected to make their way to final operating position this summer, Globalstar management will be free to focus on growing the business rather than day-to-day financial stresses.
Turning around the business at Globalstar is first a matter of securing current and existing voice subscribers to Globalstar’s higher subscription rates now that the new satellites are offering higher call-connection rates. It is these subscribers — to what Globalstar calls its Duplex service — that will generate the bulk of the revenue needed to complete the second-generation ground network and repay the company’s loans.
Duplex customers began abandoning Globalstar in 2007 when its first-generation satellites began suffering a degradation, likely caused by radiation, of on-board antennas responsible for the voice service. One-way data links were not affected, and it was at this point that Globalstar focused on its Spot Messenger location-determination service, which has become popular with outdoor enthusiasts.
In a May 20 filing with the U.S. Securities and Exchange Commission (SEC), Globalstar said its Duplex subscriber count dropped by 8 percent in the three months ending March 31, to some 83,900, compared with the same period a year ago.
But Duplex revenue per subscriber was $19.24 per month, up from an average $17.42 per month for all of 2012. In its SEC filing, Globalstar said some subscribers were resisting the higher rates associated with the improved service and were quitting the service.
Monroe said that despite the Duplex rate increases, a Globalstar subscription still costs substantially less than equivalent services from competing mobile satellite operators. Globalstar competes directly withCommunications and worldwide, and with Thuraya Telecommunications Co. in the Middle East, Asia and Africa.
Total Globalstar revenue, including equipment sales and its lower-margin one-way communications services, notably from the company’s Spot service, was $19.3 million for the three months ending March 31, up 16 percent from the same period a year ago.