Globalstar May Have Drawn Down Line of Credit
Globalstar Telecommunications Ltd. may have drawn down a $250-million credit line, a Wall Street research report said Wednesday, raising questions once again about the viability of satellite telephone companies.
Globalstar, which is backed by Loral Space & Communications Ltd., drew down the credit line, which is set up in the form of a Chase Manhattan Bank facility expiring June 30, a C.E. Unterberg, Towbin analyst, William Kidd, said in a research report.
“Most thought the facility would expire undrawn in a couple of days,” Kidd said. “We believe that thesis is inaccurate. We believe Globalstar drew on the facility near June 10.”
Bernard Schwartz, chairman and chief executive of Loral and Globalstar, declined to comment on the report, saying the company draws upon its credit facilities “as we need to or want to.” But he said that Loral would continue to back Globalstar.
“We continue to make this investment because we think it is a very good business,” Schwartz said.
Loral is the managing partner and owns about 40% of Globalstar, which also includes telecommunications partners Qualcomm Inc., China Telecom, DaimlerChrysler’s aerospace unit and others.
A Globalstar spokesman said the company was still comfortable with a previous statement that it will have a cash shortfall of $160 million this year, not counting the credit facility. The company has “a number of options” to raise additional funding, the spokesman said.
Satellite telephone companies have been under close inspection since the collapse earlier this year of $5-billion Iridium, which was backed by Motorola Inc. Another competitor, ICO Global Communications, emerged from bankruptcy in May under the name New ICO.
Questions have been raised about how well a satellite system works for mobile phones. Customers have complained about the high cost of the service and the phones, which are bulkier than the handsets used for traditional cellular service.
New York-based Globalstar lost $91.9 million, or 98 cents per common share, in the first quarter of 2000 on revenue of $609,000.
Globalstar shares were up 16 cents to close at $8.53 on Nasdaq. Loral rose 6 cents to close at $7.06 on the New York Stock Exchange.
Kidd’s report said the $250 million from the facility should enable Globalstar to continue operating until March 2001. The company previously had enough cash to last until September.
Prudential Securities aerospace and defense analyst Todd Ernst said Loral might be better off using its cash on other projects such as fixed satellites or broadband instead of Globalstar.
“We do not know if Globalstar is going to succeed or fail,” Ernst said. “We do know that it is high-risk.”
Schwartz disagreed, saying that Globalstar, which has a network of 52 orbiting satellites, was a valuable property even though it would take some time before it started producing cash. He declined to provide a specific forecast.
