11.03.08

ICO awarded ~$707M in Boeing lawsuit

Posted in Financials, ICO/DBSD, Spectrum at 12:47 pm by timfarrar

After the punitive damages phase of the ICO-Boeing lawsuit, it looks like the total damages awarded to ICO (including interest) will be approximately $707M. The question now facing ICO, assuming it is able to settle the case and collect something approaching this amount (which is by no means a foregone conclusion since Boeing has stated that it will appeal and according to ICO it would likely take two years for such an appeal to run its course) is what to do with the money.

Broadly speaking there are three things that this money could go towards:
1) Repayment of the ICO North America convertible bonds (which total $767.7M including interest and are due in August 2009)
2) Bringing the Mobile Interactive Multimedia (MIM) system into commercial operation in North America by 2010 (which ICO has stated will require about $700M of further investment)
3) Investing in completion of the global MEO system, which ICO is attempting to retain its license for in Europe (or conceivably even switching to a new GEO system in Europe, similar to the change ICO made in North America).

The most interesting issue is that the convertible bondholders do not actually have any rights to the proceeds of the Boeing lawsuit, since they have invested in ICO North America, not the ICO Global parent company. As such, their only security is the North American GEO satellite, the development work towards MIM, and the associated spectrum licenses. If ICO decided to sell these assets on the open market, it is entirely possible in the current financial market that it would realize far less than the $767M due on the bonds. However, it seems rather unlikely that ICO Global would simply put ICO North America into bankruptcy and keep the lawsuit proceeds for the parent company. Presumably they might instead attempt some swap of the ICO North America debt into ICO Global equity at a discount to the $767M face value of the bonds. This seems especially likely if there is a delay in concluding the Boeing lawsuit and so ICO’s available cash is limited, and appears to be the approach indicated on ICO’s conference call today.

ICO also remained tight lipped on the conference call about priorities for North America vs Europe. However, in terms of moving forward with ICO’s satellite system, its hard to see that it would make sense to prioritize a new deployment in Europe in preference to bringing the existing North American system into full commercial operation. It seems doubtful that there is a particularly positive business case for Solaris or Inmarsat’s proposed European S-band project, let alone for a new entrant such as ICO, and ICO seemed to hint on the conference call that it would focus on its current single MEO satellite as the reason why it should be entitled to a European license. However, even the future for MIM in North America is questionable in light of Toshiba’s decision in July 2008 to shut down the equivalent MBCO service in Japan next year and ICO emphasized its intention to pursue fiscal restraint, delaying commercial service until the economic and financial environment improves.

Thus, as we’ve speculated before, it looks like ICO will continue to wait and see whether cellular operators eventually decide to acquire MSS operators such as ICO to get hold of their spectrum, perhaps revisiting the handheld MSS market in the meantime. It now seems probable that ICO will be able to outlast TerreStar and thus it could also perhaps hope to acquire TerreStar’s assets and spectrum in the future at a very attractive price, creating a more compelling spectrum platform for terrestrial partners.

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