Globalstar's future dim

Satellite operator must restructure debt to survive

Deep in debt and running out of cash, satellite telephony provider Globalstar must find investors willing to fund a restructuring program. A Chapter 11 filing appears to be inevitable.

No restructuring plan has been devised, but one is forthcoming that will give the company one or two more years to prove its business case, said Mac Jeffery, senior communications director for Globalstar.

"We clearly had underestimated the time it would take to tap that market," he said. "We were too ambitious."

This was reflected in the company's second quarter, when it posted a $143 million net loss that left just $98 million in cash and cash equivalents as of June 30. To help ensure that it can fund operations through the end of the year, Globalstar cut 50% of its employees.

Such cost-cutting measures should buy Globalstar some time, but it will be difficult finding investors willing to put money into a company that has not made payments on its existing $2.9 billion-debt load during the last eight months.

In the past, Globalstar has turned to existing backers for funding help, but original investors Loral Space & Communications and Qualcomm have written down their investments in Globalstar and are expected to continue doing so until the company is restructured. In May, Loral Chairman and CEO Bernard Schwartz resigned as Globalstar's chairman and CEO.

For years, Globalstar officials emphasized its differences from Iridium the most notable satellite telephony failure but the company's future seems to be following the same path as the Motorola-backed project.

"[Globalstar] will offer service, but it will have a niche market like other satellite players. It is not a mass-market product," said Greg Caressi, research manager for the satellite communications group at Frost & Sullivan.

In January, Globalstar retained financial adviser The Blackstone Group to identify funding alternatives and develop a revamped business plan, Jeffery said.

"We have money until the end of the year, but realistically we have to have things locked down before then," he said. "Blackstone is convinced there is a market for this. Now the key is finding the right investors. It would be nice to have just one investor, but my hunch is that there will be a few."

Caressi said investors may come to the table only after Globalstar files Chapter 11, but he does believe the company can come up with a restructuring plan. As in the cases of other satellite telephony players, the bankruptcy process may give new life to Globalstar, he said.

"They can do it. Orbcomm and Iridium have done it."