Iridium raising new debt to cover late Aireon payments

A company that fleet operator Iridium formed to help finance its second-generation satellite constellation is taking longer than expected to pay Iridium back for carrying its sensor network to orbit.
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            WASHINGTON — A company that fleet operator Iridium formed to help finance its second-generation satellite constellation is taking longer than expected to pay Iridium back for carrying its sensor network to orbit.
McLean, Virginia-based Iridium said Feb. 22 that to avoid counting on aircraft-tracking startup Aireon for liquidity, Iridium went back to its lenders to raise additional debt to finish the $3 billion Iridium Next constellation it’s in the midst of deploying.
In a conference call with investors, Iridium Chief Financial Officer Thomas Fitzpatrick said Iridium reached an agreement with the banks lending money to the company through BPI France Assurance Export (BPIAE, formerly part of the French export credit agency Coface) that lets Iridium raise new debt and further delay payments due this year.
“Iridium remains optimistic in the expectation for hosting payments from Aireon this year, but feels best to not rely on them for purposes of our liquidity,” Fitzpatrick said. “Given these pending plans, we can now complete the launch program with no concerns about liquidity.”
Iridium borrowed $1.8 billion in 2010 through a Coface-organized network of banks to pay for construction of 81 Iridium Next satellites from French manufacturer Thales Alenia Space. Part of Iridium’s repayment strategy involved charging companies like Aireon to host their payloads onboard Iridium Next. Aireon owes Iridium $234 million for hosting one of its Automatic Dependent Surveillance-Broadcast aircraft-tracking payloads on each of Iridium’s satellites, as well as $20 million a year in data fees. None of the hosting payment has been received, Fitzpatrick said.
Aireon’s challenge is threefold: investors have not committed as much capital as desired, the U.S. Federal Aviation Administration (FAA) has not signed up for its service, and its full sensor network won’t be fully in orbit until Iridium Next is complete. All three could be solved this year, however.
Fitzpatrick said Aireon expects to close its next financing round by this summer, and that Iridium anticipates the FAA will agree to buy Aireon services during the second half of this year. SpaceX, Iridium’s launch provider for the entire Iridium Next constellation, is on pace to complete the remaining four Iridium Next launches this year.
Fitzpatrick said Iridium intends to inform the U.S. Securities and Exchange Commission (SEC) about the specifics of the new debt agreement once the details are finalized with the BPIAE lenders. He declined analysts questions about the debt, beyond saying that the raise won’t include equity.
Iridium’s capital expenditures for 2017, mostly driven by Iridium Next, were $400 million. The company has $298 million in cash and marketable securities currently.
Next SpaceX launch in late March
Iridium CEO Matt Desch said the successful Feb. 22 launch of a SpaceX Falcon 9 from Vandenberg Air Force Base cleared the way for greater schedule certainty with Iridium Next, which is launching entirely from the California facility. So far SpaceX has completed four Falcon 9 launches for Iridium, and has four more to go, though the original launch campaign was supposed to have been completed in 2017.
The fifth Iridium Next launch will likely occur March 29, he said. Subsequent missions should follow every five to six weeks until the constellation is complete, he said. Each launch carries 10 satellites at a time, with the exception of the sixth launch, which will carry five Iridium Next satellites and two U.S.-German science satellites called GRACE-FO.
The GRACE-FO, or Gravity Recovery and Climate Experiment Follow-On satellites, were originally supposed to launch on a Dnepr rocket through the Russian-Ukrainian joint venture Kosmotras, but the mission never happened. Iridium had two satellites slated to launch on Dnepr as well, but booked a shared Falcon 9 after Russian red tape left the launch, once forecast for 2015, on indefinite hold.
In a Feb. 22 SEC filing, Iridium said it does “not believe that Kosmotras will be successful in obtaining the permits or authorizations to launch our satellites on a Dnepr rocket.” Iridium wrote off $36.8 million as an “accelerated depreciation expense” for the amount paid to Kosmotras for the mission that never happened. The full cost of the Dnepr launch was $51.8 million.
Once complete, Iridium Next will consist of 66 active satellites, nine orbiting spares and six ground spares.
Revenue rising, but Certus delayed
Iridium reported a net income of $233.9 million on a total revenue of $448 million for the year ending Dec. 31. Connected sensors and and other Internet of Things devices drove commercial subscribers up 23 percent to 510,000 customers, and helped boost commercial service revenue by 12 percent over 2016 to $69.4 million.Total Iridium subscribers numbered 969,000. 
Fitzpatrick said Iridium Certus, the company’s next-generation L-band connectivity service, is having a slower-than-expected start, but should reach $100 million in annual revenue in late 2021, a year later than previously projected. “Greater clarity on product rollout and partner marketing plans,” informed the revised forecast, he said.
Iridium’s operational EBITDA, or earnings before interest, taxes, depreciation and amortization, grew 4 percent to $265.6 million for the year.
In government connectivity, Iridium has a five-year contract with the U.S. Defense Information Systems Agency worth $400 million that expires this year. Desch said Iridium feels confident in the ability to win a renewal of the contract. Average cost per subscriber has decreased 24 percent since the contract began, and the number of subscribers has nearly doubled, he said, to around 100,000. He said a new deal could happen this year, or in 2019 if the government exercises a six-month extension option.
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