Business Context and Reporting Period
Company: Globalstar, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: June 3, 2009 (Earliest event reported)
Reporting Period: Events occurring on June 3, 2009, and June 5, 2009.
Globalstar, Inc. reported the entry into a material definitive agreement for a new credit facility and an amended satellite construction contract. The company is focused on the construction and launch of its second-generation satellite constellation.
Key Financial Metrics and Agreements
Credit Facility
- Total Facility Size: $586.3 million senior secured facility.
- Guarantee: 95% of obligations guaranteed by COFACE (French export credit agency).
- Tranche Structure:
- $563.3 million: Reimbursement for prior payments to Thales Alenia Space; funds to be used for launch services (Arianespace), ground network equipment (Hughes, Ericsson), working capital (up to $150 million), and insurance premiums.
- $23 million: Payments to Arianespace and COFACE insurance premiums.
- Interest Rate: Floating LIBOR (capped at 4%) plus a margin of 2.07% (through Dec 2012), increasing to 2.25% (through Dec 2017) and 2.40% thereafter.
- Maturity: 96 months after the first repayment date.
- Repayment Schedule: Semi-annual principal repayments begin the earlier of 8 months after launch or December 15, 2011.
Existing Debt and Equity Context
- Existing Debt: Approximately $180 million owed to Thermo Funding Company LLC as of May 31, 2009.
- Convertible Notes: Company permitted to make payments on 5.75% Convertible Senior Notes due 2028.
Satellite Construction Contract
- Counterparty: Thales Alenia Space France.
- Total Contract Price: Approximately €678.9 million (approx. $904.8 million at March 31, 2009 rates).
- Payments Made: Approximately €146.8 million previously paid.
- Delivery Schedule: Commences Q3 2009, continuing through 2013.
Material Changes and Conditions Precedent
The new credit facility is subject to strict conditions precedent that must be satisfied by August 5, 2009. Funding is not guaranteed until these conditions are met:
- Debt Conversion: Thermo Funding Company must convert all outstanding indebtedness (approx. $180 million) into Globalstar capital stock.
- New Capital Investment: At least $45 million must be invested via stock issuances or subordinated loans.
- Contingent Equity: Thermo Funding Company must deposit $60 million in cash into a contingent equity account.
- Reserve Account: A debt service reserve account must be funded with approximately $46.8 million in cash and guarantees.
Thermo Funding Company has agreed in principle to convert debt and provide up to $105 million in equity/contingent equity, but terms are not finalized.
Guidance, Risks, and Covenants
Covenants
Post-second repayment date, Globalstar must maintain:
- Minimum liquidity amount.
- Minimum adjusted consolidated EBITDA.
- Minimum debt service coverage ratio.
- Maximum net debt to adjusted consolidated EBITDA ratio.
The agreement also restricts additional debt, liens, asset dispositions, mergers, and capital expenditures.
Risks and Contingencies
- Funding Uncertainty: There is no assurance that the conditions precedent will be satisfied by the August 5, 2009 deadline, meaning funding may not occur.
- Prepayment Restrictions: Repaid amounts cannot be reborrowed.
- Change in Control: Loans must be repaid in full upon a change in control.
- Collateral: Obligations are secured by a first priority lien on substantially all assets (excluding FCC licenses), including patents, trademarks, and equity of subsidiaries.
Investor Verification Checklist
- Verify if the $180 million debt owed to Thermo Funding Company has been successfully converted to equity by the August 5, 2009 deadline.
- Confirm the receipt of the required $45 million in new capital investment and the $60 million contingent equity deposit.
- Monitor the funding status of the $46.8 million debt service reserve account.
- Review the final terms of the equity arrangements with Thermo Funding Company, as they were not finalized at the time of filing.
- Check for any updates on the launch schedule of the second-generation constellation, as repayment timing is tied to this event.