Star attractions - satellite industry - Industry Trend or Event

CommunicationsWeek International, August 16, 1999 by Theresa Foley

Investors do not have concerns about the broadband satellite technology but they do see an issue with market risk. "Investors will look much harder at any numbers consultants have come up with on the possible market size," Landis adds. "Sampling statistics seem to work [for forecasting demand], but [whether they are deemed credible] will depend on the methodology. We want to know how the numbers were derived."

On the high-yield bond side, investors in satellite bonds have seen a decided turn for the worse in 1999, as the resale value of bonds continued to fall. On average, satellite bonds have declined far more steeply in value than the average for bonds in the overall market, or for telecoms bonds as a group, according to statistics from Bear Stearns as of early August.

Bond values

The Bear Stearns statistics say that investors who owned telecoms bonds experienced a total return of 20% in 1997, versus -0.2% in 1998, and 2.6% in the first half of 1999. Satellite bonds in comparison, returned 22.9% to investors in 1997, and dropped to -9.5% in 1998 and then to -26.1% in 1999. The decline in satellite bond values was driven in part by Iridium's troubles plus increased concerns over technical problems after a number of in-orbit failures of satellites owned by different operators around the world, Bear Stearns' Moskowitz says.

Meanwhile, Iridium executives faced an 11 August deadline for payments on an $800 million bank loan that had twice been extended to allow for the Iridium business plan to be rearranged. Iridium and its chief sponsor Motorola Inc. were apparently seeking a survival strategy in which partners and investors would sacrifice something to keep the project going long enough for the revised marketing ideas to begin bearing fruit. A cheaper service plan has been devised to try to drum up new subscribers and revenues.

           Overview of financing trends in the satellite sector

         ($ millions)
1993          $667
1994        $1,563
1995        $1,706
1996        $2,578
1997        $7,720
1998        $4,266
1999 YTD    $6,119


Private Equity
Public Equity
High-yield debt
Investment grade debt
Source: Bear Stearns