Business Context and Reporting Period
Globalstar, Inc. filed this Form 8-K on August 6, 2013, reporting events occurring on July 31, 2013. The filing details the entry into a Global Deed of Amendment and Restatement (GARA) regarding the Company's senior secured credit facility. This transaction addresses existing defaults and restructures debt obligations in light of delays in the delivery of the Company's second-generation satellites.
Key Financial Metrics and Debt Structure
- Credit Facility: The existing $586.3 million senior secured credit facility (COFACE Facility) has been amended and restated.
- Restructuring Fees: Globalstar is required to pay approximately $13.9 million in restructuring and underwriting fees on the Effective Date, representing 40% of the total fee. The balance is due by December 31, 2017.
- Principal Payments: The amendment postpones an aggregate of $235.3 million in principal payments through 2019. The initial principal payment date is moved from June 30, 2013, to December 31, 2014.
- Maturity Date: The final maturity date is extended from June 30, 2020, to December 31, 2022.
- Interest Rate: The annual interest rate increases by 0.5% to LIBOR plus 2.75% at the Effective Date. It will increase by an additional 0.5% annually starting June 1, 2017, up to a maximum of LIBOR plus 5.75%.
- Liquidity Covenants: The required minimum liquidity amount is reduced from $5 million to $4 million. The Debt Service Reserve Account balance is fixed at approximately $37.9 million.
- Thermo Loan Agreement: As of July 31, 2013, indebtedness to Thermo Funding Company LLC (including capitalized interest) totaled approximately $57.4 million. This debt is now convertible into common stock on terms similar to the Company's 8% Convertible Senior Notes.
Material Changes Versus Prior Period
- Default Waiver: Lenders have waived all existing defaults or events of default under the previous credit agreement.
- Term Extension: The facility term is extended by two and a half years.
- Covenant Adjustments: Financial covenants have been restructured to align with a revised business plan reflecting satellite delivery delays. A new interest coverage ratio covenant has been added.
- Prepayment Triggers: Mandatory prepayments are expanded, including triggers for excess cash flow, spectrum monetization, asset dispositions, or raising more than $145 million in new debt or equity (with specific exclusions).
- Change of Control: The definition now requires mandatory prepayment of the entire facility if James Monroe III and affiliates own less than 51% of the Company's common voting stock.
- Dividend Restrictions: The Company is prohibited from paying cash dividends or repaying principal/interest to Thermo while the COFACE Facility is outstanding.
Guidance, Outlook, and Conditions
The effectiveness of the GARA is conditioned on several factors to be met by August 9, 2013, including no material adverse change since May 10, 2013, and evidence that Thermo has invested $45 million in Globalstar since May 20, 2013. Thermo has confirmed its obligation to make cash contributions in exchange for equity or equity-linked securities: $20 million by December 26, 2013, and up to an additional $20 million by December 31, 2014.
Management commentary indicates the restructuring is necessary to accommodate delays in the delivery of second-generation satellites. The filing notes the absence of undisclosed litigation as a condition for effectiveness.
Investor Verification Checklist
- Verify the receipt of the $45 million investment from Thermo Funding Company LLC as required for the GARA effectiveness.
- Confirm the full funding of the Debt Service Reserve Account (approximately $37.9 million).
- Monitor the status of the $13.9 million restructuring fee payment and the schedule for the remaining balance.
- Track the Company's ability to meet the new interest coverage ratio covenant and the reduced minimum liquidity requirement of $4 million.
- Assess the impact of the increased interest rate (LIBOR + 2.75% rising to LIBOR + 5.75%) on future cash flow requirements.
- Review the status of vendor obligation restructurings mentioned as a condition for the agreement.