PARIS — The scheduled Nov. 4 closing of Iridium’s $1.45-billion term loan and associated $100 million revolver will enable the company to free itself from its decade-old French export-credit loan.
While indispensable to Iridium’s survival in 2010, the loan from Bpifrance, then called Coface, included multiple restrictions including a requirement for a large cash reserve for debt service and other constraints on management.
The new loan, announced Oct. 21, was oversubscribed, with orders of $5 billion, discounted to 99.5 cents on the dollar with an interest rate of LIBOR plus 3.75%, with a LIBOR minimum of 1%. Current LIBOR is about 1.9%.
The terms compare favorably with the recent experience of Iridium competitor Inmarsat of London, whose attempted $2.7-bilion loan was reduced to $1.75 billion after market resistance and priced at LIBOR plus 4.5%, with a LIBOR minimum of 1%, according to Refinitiv LPC.
Inmarsat is financing its $3.4-billion purchase by Warburg Pincus, Apax and two Canadian pension funds. The company operates a fleet of satellites in geostationary orbit and, unlike Iridium, cannot promise a capex holiday.
Iridium had waited until confirmation of its seven-year $738.5-million contract with the U.S. Defense Department for Iridium services before proceeding with the loan. Iridium Chief Financial Officer Thomas J. Fitzpatrick said the gods of the market further blessed Iridium by dropping LIBOR rates by 0.6 percentage points in the meantime.
Entering the debt market at the same time as Inmarsat
In an Oct. 29 investor call, Fitzpatrick said Iridium’s late-September loan negotiations were made more of a challenge by the financing sought by “another well-known satellite company,” meaning Inmarsat.
“That term loan was downsized, and the pricing increased, in order to close the deal,” FItzpatrick said. “This presented a challenge for us since ether company was in the same industry as Iridium and had a higher credit rating.”
Despite the credit-rating differential, “we and our bankers believe that Iridium’s growth and significant free cash flow represented a superior credit, and our results bear this out.”
The Coface/Bpifrance loan financed Iridium’s $3-billion second-generation constellation of low-orbiting satellites, which is now in orbit and operating.
Service start of the full constellation, securing a new U.S. Defense Department contract and paying off the French export-credit loan are three of the boxes Iridium has promised to tick off as it remakes itself for investors.
Iridium Chief Executive Matt Desch said during the call that the company’s Certus broadband product suite, introduced earlier this year, has now booked sales totaling “several multiples” of the 800 active service users.
Iridium sees Certus broadband as driving growth in the company’s presence in the cockpits of commercial, business and general-aviation aircraft and rotorcraft.
“We’re not the revenue leader in L-band aviation but we definitely are the unit leader in aviation as we’ve attacked more the lower end of the aviation cycle, say, in rotorcraft,” Desch said in another reference to Inmarsat. “We have a clear majority of rotorcraft that have satellite connections on them.”
Desch said Iridium will add a Certus Midband product in 2020 to strengthen Iridium’s IoT business line, which has been growing fast.
The company reported 767,000 commercial IoT subscribers as of Sept. 30, up 20% from a year ago, with average monthly revenue of $11.36 per subscriber, which was down from $12.71 per month last year as Iridium’s subscriber base adds more lower-revenue mass-market personal communications devices.
The satellite-IoT market is fast becoming highly competitive. In addition to veterans such as Inmarsat, Globalstar and Orbcomm, multiple new entrants are arriving.
Most recently, veteran satellite fleet operator Eutelsat is staring a medium-speed Ku-band offering in addition to planning its own low-orbiting constellation of satellites for lower-speed applications: http://bit.ly/2qRh3vl
Desch said the Certus Midband IoT product would be up to 35 times faster than the current Certus product and appeal to markets that need more than asset-monitoring information.
In a further mingling of what used to be separate markets for separate companies, Desch told investors to expect more cooperating agreements of the kind Iridium signed in September with startup global satellite broadband provider OneWeb, launching a large constellation of Ku-band satellites in in low Earth orbit.
Desch said OneWeb and Iridium agreed that “a combined offering could leverage the strengths of both companies’ LEO networks, and that our L-band complements their Ku-band service very well.
Aireon on track to be cash-flow positive in 2020
“This is likely not the only announcement we’ll make with new mega-constellation owners,” Desch said, describing it as “a clear message to investors that our L-band and the new Ku- or Ka-band networks are not direct competitors.”
Desch said the Aireon air traffic surveillance system, whose satellite payload is deployed on Iridium’s new satellites, still expects to reach cash-flow break-even in 2020.
Iridium is an investor in Aireon and also sells access to the Iridium satellite constellation. Aireon is expected to pay Iridium $16 million per year. Following an earlier $43 million payment, Aireon transferred another $11 million to Iridium in October, with another $5 million expected by year’s end.
Fitzpatrick said the $58 million total means Aireon has prepaid its minimum annual obligations to Iridium through mid-2021.