Satellite Delay May Cause Higher Debt Payments for ICO

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PARIS — The recently disclosed delay in the launch of ICO Global’s satellite raises the risk that the company’s debt-servicing payments will increase substantially, ICO said in a filing with the U.S. Securities and Exchange Commission (SEC) .

Reston, Va.-based ICO Global Communications has guaranteed to its bondholders that its geostationary satellite planned for two-way data and voice communications will be certified as operational in orbit by Aug. 15, 2008. ICO’s debt covenants oblige the company to make substantially higher interest payments if it fails to meet that schedule.

ICO’s Federal Communications Commission (FCC) license stipulates that the company launch its satellite by June 30, 2007. In a Nov. 9 filing with the FCC, ICO asked that its deadline be extended to Nov. 30 and cited component-related delays as the reason.

ICO’s ICO G1 satellite, a Loral 1300 model, is expected to weigh around 6,600 kilograms when it is launched aboard a Lockheed Martin Atlas 5 rocket.

In a Nov. 14 filing to the SEC, ICO says it will be spending between $525 million and $600 million to build, insure and launch the satellite. If the company cannot find partners to invest in a network of terrestrial repeaters, or Ancillary Terrestrial Component , then ICO will need to spend an additional $200 million to $400 million to deploy a limited network of its own.

ICO has been granted rights to use the 2-gigahertz, or S-band, portion of the radio spectrum, but must share that spectrum with Terrestar Networks, a competing system with the same general business plan. Two Terrestar satellites are under construction at Space Systems/Loral in Palo Alto, Calif. ICO has a contract option with Loral for a second satellite but has not yet exercised it.

Terrestar-1 is scheduled for launch aboard a European Ariane 5 vehicle between November 2007 and April 2008.

Being first out of the Loral production and test facility and into orbit could be important for Terrestar and ICO insofar as the first satellite in operation will have at least some leeway as to which portion of the S-band spectrum it uses.

In a Nov. 10 conference call, ICO Chief Executive J. Timothy Bryan said the benefits to being first in orbit “may be a little overplayed” but include the ability to select a portion of the spectrum that is the furthest away from microwave links used by terrestrial systems.

In its Nov. 9 FCC filing , ICO says it needs to delay its launch because of problems with three types of satellite components manufactured by Loral or by Loral subcontractors. These components — capacitors, oscillators and graphite-composite waveguide pieces — are central to the satellite’s ability to function as designed.

In particular, the ICO system employs a ground-based beam-forming technology that permits it to adjust to different levels of demand inside the coverage of its multiple spot beams. Among other things, the beam-forming feature requires that the satellite’s phased-array antenna remain extremely stable.

ICO’s request to the FCC includes a statement by Christopher F. Hoeber, Loral senior vice president. Hoeber said no single company could have produced the 1,200 graphite-composite waveguide pieces on ICO’s tight schedule, so Loral subcontracted some of the work to two outside companies in addition to retaining its own share. Despite spreading the work among three companies, the production is taking longer than forecast.

Hoeber said Loral is confident that the adjustments made in the production of all three components will permit the satellite to be delivered in time for a November 2007 launch.

Other ICO developments noted in its FCC and SEC submissions include:

A U.S. Internal Revenue Service audit of ICO’s 2003 tax filings could result in ICO paying between $50 million and $103 million in back taxes, plus penalties and interest. The company says it believes it properly accounted for its gains and losses in its tax filings.

ICO has spent $14 million this year to secure regulatory rights to its satellite’s intended geostationary orbital slot. ICO had been in negotiations with Telesat Canada and Intelsat Ltd., both of which operate satellites close enough to ICO’s intended 91 degrees west position that coordination is needed to avoid an in-orbit collision.

As of Sept. 30, ICO had potential liabilities totaling $43.5 million arising from payments due to operators of satellite access facilities built for ICO’s medium-Earth orbit constellation, which was never fully deployed . ICO built 11 such facilities worldwide. Ten of them were owned by local companies that provided financing in exchange for regular payments from ICO. Eight of these 10 companies have since settled with ICO. Deutsche Telekom of Germany is one of those that did not settle and is now seeking more than $10 million in payments from ICO in arbitration now before the International Chamber of Commerce in Paris.

ICO has already spent more than $9.4 million in a legal dispute with Boeing over the uncompleted ICO medium-Earth satellite constellation, for which Boeing was prime contractor. “The expense of pursuing this litigation will be material,” ICO says of the dispute, which is scheduled for trial in September 2007 in the Superior Court of California.