Shrewd Financing Move Provides Cash Until Next Spring

It looks like Globalstar L.P. [GSTRF] will be in business until at least the first quarter of next year. In a move that will most likely not win any friends over the long haul, Globalstar drew down a $250 million credit facility and promptly defaulted on the loan, forcing the mobile satellite operator’s guarantors to take on additional debt.

For Globalstar, this move means the satellite telephony service provider will have enough cash to keep its business running for an additional six months. This could be key, considering the less-than-stellar numbers that were posted for the first quarter of operations.

For Globalstar’s guarantors, it means new debt that may never get repaid. Taking the brunt of the this financing move is Lockheed Martin Corp. [LMT], which has been called upon to provide $150 million of funding. The other guarantors include Qualcomm Inc. [QCOM], DASA and Loral Space & Communications [LOR].

A recent C.E. Unterberg, Tobin report explained some of the details of the credit facility, noting that drawing on the facility before it expired last Friday would ensure repayment of $206.3 million to Lockheed Martin.

But given the recent public statements made by various Wall Street analysts at a recent space and satellite financing conference, Globalstar may never be in a position to repay the loan. Analysts stated during the conference that they are prepared for the realistic possibility that Globalstar will file for bankruptcy at some point in the near future.

This leaves Lockheed Martin in a tough spot.

“Lockheed Martin is entitled to repayment by Globalstar of amounts paid under the guarantee agreement and has not yet reached agreement with respect to the form and timing of repayment,” the company said.

Globalstar appeared to show no real remorse over its decision to force its guarantors to take on additional debt to keep the company operational.

“The deal was negotiated in 1996,” said Mac Jeffery, spokesman for Globalstar. “Everybody walked into it with their eyes open.”

Lockheed Martin can take some consolation in that C.E. Unterberg is not expecting a bankruptcy filing by Globalstar anytime soon, thus improving the chances that Lockheed Martin will get repaid.