Harbinger Cash Infusion To Help Keep SkyTerra Going into 2010

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PARIS — Mobile satellite services provider SkyTerra Communications has received a scheduled $175 million cash payment from hedge fund Harbinger Capital Partners and has sufficient cash to manage the business through September 2010.

Reston, Va.-based SkyTerra, which had raised hopes the first of its two large L-band satellites might be launched late this year, said in a May 4 conference call that the launch is now expected to occur between March and May 2010.

The SkyTerra-1 and SkyTerra-2 5,400-kilogram satellites, both featuring a 22-meter-diameter deployable antenna manufactured by Harris Corp. of Melbourne, Fla., are designed to offer mobile voice and broadband data services to corporate and government networks.

SkyTerra-1 is to be launched by an International Launch Services Proton-M vehicle, with SkyTerra-2, to be launched in late 2010 or early 2011 by a Sea Launch Co. Zenit-3SL vehicle.

SkyTerra’s business model is centered on the use of terrestrial signal boosters, called Ancillary Terrestrial Components (ATC), to extend services to urban areas and other places out of direct line-of-sight coverage of the satellites. As is the case with several other companies building L- and S-band mobile satellite systems, SkyTerra has not yet succeeded in finding a strategic partner to finance deployment of the ATC network.

But in Harbinger, SkyTerra has found a wealthy sponsor that continues to believe in the promise of satellite-enabled ATC as wireless broadband reaches into ever more areas of modern corporate and consumer life.

Harbinger, which was already a major SkyTerra backer, has agreed to increase its backing by $500 million, to be paid in four tranches between January 2009 and January 2010. The first two, with a combined value of $325 million, have been received by SkyTerra.

SkyTerra has also secured an agreement from satellite manufacturer Boeing Satellite Systems International to defer a portion of the satellite construction costs until December 2010 or just before the launch of the second satellite – whichever date comes first.

As of March 31, SkyTerra had deferred $84.7 million in Boeing contract payments. Another $30.9 million in Boeing contract payments could be deferred if necessary, according to a May 1 SkyTerra filing with the U.S. Securities and Exchange Commission.

SkyTerra’s debt, including the Boeing deferrals, totaled slightly more than $1 billion on March 31.

Much of SkyTerra’s future business success will depend on its ability to stitch together sufficient contiguous L-band spectrum to be able to assure broadband connectivity. The company has concluded an agreement with fellow L-band mobile satellite services provider Inmarsat of London on L-band consolidation, and Harbinger has begun a process that could lead to a Harbinger takeover of Inmarsat and SkyTerra.

During the May 4 conference call, a SkyTerra investor complained that Inmarsat appears to be dragging its feet with respect to L-band consolidation, delaying the time when SkyTerra could advertise to investors that it has locked up the needed spectrum.

“We have no idea when the spectrum will be contiguous,” this investor said. “Nothing is being done to create value” by consolidating the Inmarsat and SkyTerra spectrum rights.

This investor proposed that SkyTerra lobby U.S. regulators, the administration of U.S. President Barack Obama, or Harbinger, which is already a major Inmarsat shareholder, “to convince [Inmarsat] to cooperate.”

SkyTerra Chief Executive Alexander H. Good agreed that spectrum consolidation is a slow-moving process, but he said SkyTerra and Inmarsat have resolved some issues and that others will be resolved as well.

“It is in Inmarsat’s interest to cooperate with us” in creating contiguous L-band spectrum blocs, Good said, “not only in North America, but globally. We’ve got a ways to go and we’ll get there just as fast as we can.”

Inmarsat officials have said they are cooperating with Harbinger and with SkyTerra, but it is not clear whether Inmarsat’s management favors a Harbinger/SkyTerra takeover. Unlike SkyTerra, Inmarsat already has a profitable business with no major capital expenditure needed in the near term to deploy its broadband service to maritime, aeronautical and land-mobile users.

Despite its precarious financial position, SkyTerra is investing in next-generation mobile handset technologies, an investment Good said is necessary to assure that, once its two satellites are operational, SkyTerra can deploy the best available user gear.

The company plans to spend more than $33 million by September 2010 on the new chipset and equipment designs.

SkyTerra Chief Financial Officer Scott Macleod said that including the two final payments expected from Harbinger, SkyTerra has $576 million in cash and other available financing. Its total expenses through September 2010, including launch costs, an estimated $70 million insurance premium for the first satellite’s launch and ground-based system development, are expected to total $423.6 million.

That leaves a cushion of about $152.4 million to fund operations until late 2010, Macleod said.