The offering will generate approximately $97 million for Iridium and fulfill the company’s requirement its principal lender, French export credit agency Coface, to raise capital through the exercise of outstanding warrants or to make up the difference through an equity capital raise. Those outstanding warrants total 12.4 million with a $7 conversion price.

   This requirement to raise capital was issued to Iridium pursuant to its June 2012 loan amendment with Coface that would allow the company to invest in its newly-formed Aireon venture. Raymond James Analyst Chris Quilty expects Aireon to generate substantial recurring revenues for Iridium, with the offset being lower up-front cash fees than Iridium/Coface had originally anticipated.

   “The ‘mandatory warrant exercise’ was, thus, intended to close the gap in Iridium’s capital funding plan,” Quilty said in a Sept. 30 research not. “The convertible offering appears to be all upside from my vantage point. It removes the overhang associated with the February 2013 warrant expiration. It is anti-dilutive and it gives the company a clean capital structure.  Iridium still needs to execute the warrant exchange for the $7 warrants, but within the next 3 weeks or so the stock should be trading free-and-clear with no lingering capital structure issues.”

   Quilty added that although the stock market’s reaction was apparently displeased with the transaction, Iridium, having fulfilled its capital mandate to Coface, launched an exchange offer for its $7 warrants. “Iridium no longer needs the warrant proceeds, and management would prefer to avoid the incremental dilution. Assuming all warrants are tendered, Iridium will issue 2.06 million shares of common and retire the warrants once and for all. Many investors were troubled by the possibility that Iridium’s stock could be arbitraged below $7.00 per share coincident with the February 2013 warrant expiration, thus forcing the company to execute a dilutive capital raise. By raising the money today, Iridium removes the threat of stock manipulation.”           

   The transaction has no net effect on Iridium’s capital financing plan and should not signal a requirement by Iridium to raise additional capital, according to Quilty. “We remain convinced that the company’s $1.8 billion Coface loan, along with hosted payload fees and cash flows from operation, will be more than sufficient to meet the company’s capital needs through the 2017 completion of its NEXT satellite replacement campaign.”