Iridium expects to renegotiate loan agreement by year’s end
PARIS — Mobile satellite services provider Iridium Communications expects to complete negotiations with its lenders and its satellite manufacturer by the end of the year on loosening payment obligations to ride out the delay in the launch of its second-generation constellation.
As it awaits word on when launch-service provider SpaceX will return to flight after a Sept. 1 explosion during a test procedure, Iridium is contending with multiple challenges. Many of them are at least partly the result of the fact that the company’s seven SpaceX launches, each carrying 10 Iridium Next satellites, likely will not be completed as planned by late 2017.
McLean, Virginia-based Iridium until recently had assumed that 2018 would be its first full year of operations with the Iridium Next satellites.
In an Oct. 27 conference call with investors and a filing with the U.S. Securities and Exchange Commission (SEC), Iridium said the SpaceX delay means full second-generation service will not start until mid-2018, making 2019 the first full year of service.
That will delay the expected $47 million in annual revenue from data provision and hosting fees Iridium expects from customers Aireon, a start-up commercial aircraft-tracking service provider in which Iridium is a major investor; and Harris Corp., which is managing the secondary payloads on the Iridium Next satellites.
Revenue from other Iridium Next services also are likely to be delayed, although some do not require a full constellation.
Seeking to relax multiple loan covenants
To confront the situation, Iridium has opened negotiations with nine commercial lenders and the French government, which together are behind the $1.8 billion credit facility that is paying most of the $3 billion Iridium Next system’s cost.
Among the debt covenants is a requirement that Iridium maintain a minimum cash reserve of $113 million dedicated to debt repayment. Starting in 2017, the reserve minimum rises to $189 million.
In addition to this, the credit facility has requirements on minimum cash balance, debt-to-equity ratio, hosted payload revenue levels and EBITDA, or earnings before interest, taxes, deprecation and amortization.
In the conference call, Iridium Chief Financial Officer Thomas J. Fitzpatrick said negotiations on relaxing some of these terms, and on stretching out payments to satellite prime contractor Thales Alenia Space of France and Italy, are under way.
“I think we will have a favorable outcome,” Fitzpatrick said of the negotiations, but he agreed that the process could be compared to sausage making, in which everyone likes the outcome but no one enjoys the process by which it was made possible.
Iridium’s contract with Thales Alenia Space is valued at $2.3 billion for 81 Iridium Next satellites. As of Sept. 30, it had remaining payments of about $728 million due.
The launch delay has a silver lining of sorts. With no launches, Iridium is not obliged to make some milestone payments to SpaceX and to Thales Alenia Space. As of Sept. 30, it had paid SpaceX about $339 million of contract’s full value of $468.1 million.
Fitzpatrick said the launch delay has reduced Iridium’s capital spending for 2016 by at least $100 million, to between $400 million and $450 million.
No effect on insurance from SpaceX failure
The SpaceX contract includes the right to a relaunch in the event of a failure of one of the seven contracted launches.
Iridium Chief Executive Mathew J. Desch said during the conference call that the company completed its Iridium Next launch insurance policy — also among the debt convent requirements — around the time of the Sept. 1 SpaceX explosion and that the terms and conditions did not change as a result of the failure.
To preserve cash, Iridium also has the option of reducing or eliminating the dividends it pays on its preferred stock. These total $3.85 million per quarter.
Iridium had planned to launch the first two Iridium Next satellites on a Russian-Ukrainian Dnepr rocket, commercialized by Kosmotras of Moscow. But Kosmotras has been unable to secure the necessary permissions from the Russian government for the launch, and Iridium is seeking an alternative supplier for these two satellites.
Iridium has already paid Kosmotras $36.8 million for the launch. In its SEC filing, Iridium said it “may also be unable to recover the amounts already paid to Kosmotras.”
Squeezing more life from aging constellation
Iridium’s current constellation, in its 19th year of operation, is far past its planned retirement date, another reason the company is in a hurry to launch the higher-capacity Iridium Next.
Desch said the two Iridium satellites that failed earlier this year did not suffer from battery issues, and battery performance is not an issue with any of the other satellites in the constellation.
Given the constellation’s age, industry observers regularly scrutinize its coverage for signs that it may be on the verge of a cascade of failures.
Desch said there are no such signs. “Health of the current constellation is not an immediate concern,” he said, adding that the the short service delays occasioned by the loss of two satellites earlier this year were not serious given that the “hole” in the sky created by the absent satellites is quickly filled as other satellites pass over.
Desch said that assuming the new constellation si fully operational in 2018, Iridium will begin deorbiting its older satellites so that the first-generation constellation is out of orbit by the end of 2019.