New York Bank May Breathe Life into Iridium

SAN FRANCISCO (06/01/2000) - Iridium LLC has asked a U.S. bankruptcy court to approve a letter of intent under which New York merchant bank Castle Harlan Inc. would acquire most of the assets of the failed satellite communications firm.

Terms of the proposed deal call for Castle Harlan to pay US$50 million cash in exchange for the bulk of Iridium's assets, including the company's constellation of 66 communications satellites, its trademarks and tradenames, and its Reston, Virginia-based facility, court documents show.

Castle Harlan would pay Iridium an additional $900,000 per month from the time the court gives its approval for the acquisition until the deal closes. The bank would also issue Iridium's senior lenders with a 5 percent equity stake in any successor company that might result from the acquisition.

The merchant bank is eyeing the possibility of establishing a new company that would operate and market Iridium's global communications service, Castle Harlan spokesman Charles Storer said today in a phone interview. Castle Harlan apparently sees an opportunity to turn Iridium's satellite network into a profitable venture, with the likely goal of selling the new company some years down the road.

Castle Harlan wouldn't reveal specifics of its business plan. The merchant bank has 45 days to determine whether its plan is viable, and is under no obligation to go ahead with the acquisition, Castle Harlan said in a statement issued today.

Iridium, a $5 billion venture backed principally by Motorola Inc., filed for Chapter 11 bankruptcy protection in August of last year in Bankruptcy Court for the Southern District of New York. In March, Iridium announced it had begun to shut down its satellite phone service after failing to find a buyer willing to take on the company's debts, estimated at US$4.4 billion. [See "Iridium to Cut Service Tonight," March 17.]Motorola has been maintaining Iridium's satellite network in the interim, although most of the independent gateway companies that connect the satellite network to public telephone networks have switched those gateways off. Limited services are still available in North America and Italy, but Iridium has virtually no customers remaining, according to Bob Beury, Iridium's deputy general council.

"It's not a fully functional system," Beury said in a phone interview today.

Though some analysts have raised questions about how much life remains in the Iridium network, Beury said today the satellites should remain operational for at least another four or five years. The gateways could be turned back on at any time, allowing service to be resumed, he added.

Castle Harlan isn't the first company to propose buying out Iridium. Las Vegas media company Merit Studios Inc. in March floated a plan to offer data services over the network using its own compression technology. [See "Merit Studios Hopeful for Its Iridium Rescue Plan," March 23.] Other suitors have included Venture Partners Inc., which hoped to use Iridium's network to offer cellular telephone service in Latin America.

Formed in 1987, Castle Harlan has made acquisitions totalling more than $4.5 billion. Companies in its portfolio include Worldwide Flight Services, which provides ground services for more than 200 airlines; Universal Compression, which makes gas compression equipment and services; and the restaurant chains Charlie Brown's and Marie Callender's.

Castle Harlan, based in New York, can be contacted at +1-212-644-8600, and on the Web at http://www.castleharlan.com/. Iridium, in Washington, D.C., can be reached at http://www.iridium.com/.

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