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Cash Flow Problems Led to WorldSpace Bankruptcy Filing

By | October 23, 2008
      [Satellite News 10-23-08] WorldSpace Inc.’s filed to reorganize under bankruptcy protection primarily due to liquidation and cash flow problems the satellite radio operator faced, spokeswoman Judith Pryor told Satellite News.
          Worldspace has faced problems raising additional capital for some time. “We had been given several extensions over the last year from the holders of our secure notes,” said Pryor. “They could not give us any more extensions and we could not pay them back.”
          WorldSpace Inc., along with U.S. subsidiaries 1worldspace Systems Corp. and AfriSpace Inc., filed voluntary petitions for reorganization under chapter 11 on Oct. 17. 1worldspace India, a wholly owned independent business unit, has not filed for protection from its creditors and said it will continue its business activities as usual.
          In its bankruptcy filing, WorldSpace listed liabilities of more than $2 billion and assets of more than $300 million, which includes two satellites in orbit and one in storage on the ground. In July, WorldSpace reached an agreement with four of its creditors to defer debt payments of $19.9 million less than a month after reaching an agreement with the creditors to delay a $17.7 million payment.
          In the company’s 2008 second quarter, 1worldspace reported revenues of about $3.3 million and a net loss of $36 million. The company also cut operating expenses by 26.5 percent from the same period last year. During the quarter, the company secured $20 million of financing from Yenura Pte Ltd., a company controlled by Noah Samara, chairman and CEO of 1worldspace. About $18.5 million of the funding was used to meet financing terms reached with investors, leaving $1.5 million to make payments to other creditors.
          This was not the first time Samara used Yenura to keep 1worldspace operating. In January, the satellite operator secured up to $40 million of financing from Yenura to fund the planned expansion of radio services into Europe. In August 2006, WorldSpace sold shares to Yenura that allowed the satellite operator to retain its listing on the Nasdaq market.
          While she could not say how much of a role outside factors played in current situation, WorldSpace’s inability to raise funds stemmed long before the global economic crisis dominated the news. “Moving forward, I am sure it is even tougher to capitalize in this current environment,” said Pryor. “But for us, we just could not find access to the funding we needed.”
          WorldSpace did receive access to emergency funding, as the U.S. Bankruptcy Court in Delaware approved Oct. 23 the first part of an interim debtor-in-possession financing for up to $2 million. The funds will be used to meet payroll obligations to critical employees and commence a process to sell the company or its assets.
          “We are operating with a skeletal staff right now. The money will make sure the current staff receives their salary,” Pryor said.
          The holders of the WorldSpace’s existing senior secured and convertible notes have agreed to provide, subject to the satisfaction of certain conditions, a DIP financing facility of up to $13 million for a period of 90 days in order to facilitate a sale transaction.
          The Bank Street Group LLC has been appointed as WorldSpace’s financial advisor in support of the sale and/or restructuring process. Robert Schmitz of Quest Turnaround Advisors LLC has been appointed as the company’s chief restructuring officer.

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