Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009, for GHL Acquisition Corp., a blank check company (Special Purpose Acquisition Company) incorporated in Delaware. The company is in the development stage and has not yet commenced operations other than those related to its formation, initial public offering (IPO), and a proposed business combination. The registrant is expected to be renamed Iridium Communications Inc. upon the closing of its proposed acquisition of Iridium Holdings LLC.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 |
|---|---|---|
| Revenue | $0 (No operating revenue) | $0 (No operating revenue) |
| Interest Income | $523,034 | $1,213,016 |
| Total Expenses | $462,733 | $112,267 |
| Net Income | $33,146 | $544,392 |
| Cash and Cash Equivalents | $2,249 | $728,096 (End of Q1 2008) |
| Trust Account Balance | $401,901,589 | $401,838,554 (Dec 31, 2008) |
| Total Liabilities | $13,079,364 | $12,898,985 (Dec 31, 2008) |
| Deferred Underwriting Commissions | $11,288,137 | $11,288,137 |
| Stockholders' Equity | $270,296,422 | $270,263,276 (Dec 31, 2008) |
Note: The company generates income solely from interest earned on funds held in a trust account. Operating expenses consist primarily of professional fees and administrative costs.
Material Changes vs. Prior Period
- Decline in Interest Income: Interest income dropped significantly from $1.21 million in Q1 2008 to $523,034 in Q1 2009, reflecting the broader decline in interest rates since the IPO in February 2008.
- Increased Expenses: Total expenses rose to $462,733 in Q1 2009 from $112,267 in Q1 2008. This increase is largely due to $139,691 in transaction costs related to the proposed Iridium acquisition, which were expensed under new accounting standards (SFAS 141R).
- Net Income Reduction: Net income decreased to $33,146 from $544,392 in the prior year quarter due to lower interest earnings and higher transaction-related expenses.
- Cash Position: Unrestricted cash and cash equivalents decreased to $2,249 from $129,140 at the end of 2008, as the company utilized working capital for transaction costs and taxes.
Guidance, Outlook, and Risks
Proposed Business Combination
The company is in the process of acquiring Iridium Holdings LLC. On April 28, 2009, the transaction agreement was amended to reduce the aggregate consideration to shareholders by 15%. The revised deal values Iridium at an enterprise value of approximately $517.3 million. Consideration includes:
- 29,400,000 shares of GHL common stock.
- $77.1 million in cash (subject to adjustment).
- Assumption of approximately $145.8 million of net debt.
- A potential tax benefits payment of $25.5 million to sellers.
The transaction is expected to close in the summer of 2009, subject to regulatory approvals (including FCC) and stockholder approval.
Liquidity and Capital Resources
As of March 31, 2009, the company held approximately $401.9 million in the Trust Account. The company has the right to withdraw up to $5.0 million of interest income for working capital and tax obligations. Management noted that due to declining interest rates, earnings on the trust account may be insufficient to fund operations prior to the business combination. Subsequent to the quarter end (as of May 8, 2009), the company withdrew an additional $970,000 from the trust for working capital and taxes.
Risks and Contingencies
- Termination Fee: If the transaction is terminated due to stockholder rejection or breach, and the company consummates a different business combination, it must pay a $5.0 million termination fee to Iridium Holdings.
- Liquidation Deadline: If the company fails to complete a business combination by February 14, 2010, it must liquidate and distribute trust assets to stockholders.
- Market Risk: While funds are invested in money market securities, management cannot assure that funds are not subject to market risk given overall market instability.
Investor Verification Checklist
- Verify the status of regulatory approvals (FCC, Hart-Scott-Rodino) required for the Iridium acquisition.
- Confirm the outcome of the upcoming stockholder vote on the proposed business combination.
- Monitor the company's unrestricted cash balance to ensure sufficiency for transaction closing costs and working capital needs.
- Review the amended Transaction Agreement details regarding the reduced consideration and debt assumption.
- Check for any updates on the $5.0 million termination fee contingency.