Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, for GHL Acquisition Corp. (a Delaware corporation in the development stage). The company is a "blank check" entity formed to effect a business combination. As of the filing date, GHL had not commenced operations other than its formation, initial public offering (IPO), and the pursuit of a proposed business combination with Iridium Holdings LLC. The company is scheduled to liquidate if a business combination is not completed by February 14, 2010.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Net Income (Loss) | $16,491 | $1,451,296 |
| Total Expenses | $791,167 | $193,997 |
| Interest Income | $821,169 | $2,993,222 |
| Cash and Cash Equivalents | $118,070 | $36,963 (End of Period) |
| Investments Held in Trust | $400,929,724 | $401,838,554 (Dec 31, 2008) |
| Total Liabilities | $6,014,878 | $12,898,985 (Dec 31, 2008) |
| Stockholders' Equity | $276,627,767 | $270,263,276 (Dec 31, 2008) |
Liquidity: The company holds approximately $400.9 million in a trust account, primarily invested in U.S. government securities. Unrestricted cash available for operations was $118,070 as of June 30, 2009. The company is permitted to withdraw up to $5.0 million of interest income from the trust for working capital and tax obligations.
Material Changes vs. Prior Period
- Revenue/Income Decline: Net income for the six months ended June 30, 2009, was $16,491, a significant decrease from $1.45 million in the same period in 2008. This decline is primarily due to a sharp reduction in interest income earned on the trust account ($821k vs. $2.99M) caused by lower interest rates, partially offset by higher operating expenses ($791k vs. $194k).
- Liability Reduction: Total liabilities decreased from $12.9 million (Dec 31, 2008) to $6.0 million (June 30, 2009). This reduction was driven by a waiver of $8.18 million in deferred underwriting commissions by Banc of America Securities LLC in June 2009.
- Warrant Reclassification: Certain warrants owned by Banc of America Securities LLC were reclassified from equity to a liability of $1.83 million due to contractual settlement provisions related to the proposed business combination.
Outlook, Risks, and Unusual Items
Proposed Business Combination: GHL is in the process of acquiring Iridium Holdings LLC. The amended transaction agreement values Iridium at an enterprise value of approximately $498.3 million. Consideration includes 29.4 million shares of GHL common stock, $77.1 million in cash, and the assumption of $126.8 million in net debt. The transaction is subject to FCC approval and stockholder vote.
Warrant Restructuring: In July 2009 (subsequent to the period end), the company entered into agreements to repurchase or restructure approximately 26.8 million warrants to reduce dilution upon closing. This includes repurchasing warrants for cash and stock, and restructuring others to increase exercise prices and extend expiration dates.
Liquidity Risk: Management notes that earnings on the trust account have declined significantly due to low interest rates. If the Iridium transaction is not consummated, the company may not have sufficient cash to pursue other business combinations or operate until the liquidation date in February 2010.
Risks: The filing highlights risks associated with the failure to complete the business combination, potential liquidation, and the uncertainty of the FCC approval process. There is also a risk that the trust account funds may be subject to third-party claims despite protective agreements.
Investor Verification Checklist
- Verify the status of the Federal Communications Commission (FCC) approval required for the Iridium acquisition.
- Confirm the outcome of the stockholder vote on the business combination and the number of shares exercising conversion rights (redemption).
- Review the final terms of the warrant repurchase and restructuring agreements executed in July 2009 to understand the post-closing capital structure and dilution.
- Monitor the company's unrestricted cash balance to ensure it remains sufficient to fund operations if the transaction is delayed or terminated.
- Assess the assumed debt load of Iridium Holdings ($126.8 million) and the company's ability to service this debt post-merger.