Chase Manhattan Bank has told Motorola that it must guarantee $300 million of Iridium’s $800 million debt, after claiming that the ailing satellite phone venture has defaulted on its loans.
In a letter to Motorola, Iridium’s largest investor, which was dated 29 July, Chase attested that a "triggering" event occurred under the secure credit agreement, which resulted in an "event of default."
The agreement calls for Iridium to demand that Motorola, which has an 18% stake in the project, guarantee $300 million of its borrowings, but Chase claims that Iridium failed to make the demand in a timely fashion.
In a filing with the US Securities and Exchange Commission (SEC), however, Iridium said the move was "an apparent attempt (by Chase) to preserve a position," and that both it and Motorola did not believe a "triggering" event occurred, which means that Motorola did not have to guarantee the loans.
It added that the Chase letter would not have a significant effect on the continuing restructuring negotiations going on between Motorola, Iridium, Iridium's bank lenders, bond holders and equity holders.
If Iridium defaults on the $800 million credit agreement with Chase, however, it would also be in default of another $750 million credit agreement, which Motorola guaranteed under cross default provisions.
And if the lenders of either credit agreement call in their loans, Iridium would be in default of another $1.45 billion in senior notes.
Iridium's debt situation is expected to be a hot topic on Tuesday at Motorola's annual shareholders meeting. Rumors have suggested that Motorola would consider investing an additional $400 million in the satellite phone operation if bondholders agreed to exchange $1.5 billion in junk debt for a 25 per cent equity stake.
Waivers granted by Iridium's bank lenders covering violations of loan conditions are due to expire on 11 August, however, and the 30 day grace period for a $90 million interest payment that the firm missed on its junk bonds will run out on 15 August.
Last month, Iridium exercised the right to extend the date for the interest payment, which heightened speculation that it might miss it and file for Chapter 11 bankruptcy protection.
The news came only a day after Motorola said the project may have to be shut down in bankruptcy court proceedings as a result of huge losses, unless its investors could agree on a restructuring plan.
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