Is this deja vu all over again for the MSS industry? ICO North America has filed for bankruptcy, and plans to turn over almost all of its equity to the convertible debt holders who would have been due for repayment of $767.6M in August. ICO North America has an S-band GEO satellite in orbit, which it launched in April 2008, and had planned to develop a mobile video service for cars which it referred to as MIM. However, these plans were put on hold while the company renegotiated its debts.
There is a distinction between ICO North America, now referring to itself as DBSD, and its parent company, ICO Global, which is not filing for bankruptcy. ICO Global is responsible for a MEO satellite system, whose first satellite was launched back in 2001, although the system was never completed. Though ICO maintains it has a legacy claim to spectrum rights in the S-band on a global basis, the European Commission decided yesterday that it would instead award European spectrum licenses to the Inmarsat and Solaris Mobile. ICO Global’s main asset is the judgment of $631M that it was awarded against Boeing in January this year, after a trial in which ICO blamed Boeing for its inability to complete the MEO system. ICO has not yet collected this judgment, which Boeing has appealed, and ICO has estimated it could take two years for the matter to be resolved.
ICO Global was under no obligation to share any of the Boeing judgment with the ICO North America convertible debt holders, but could have presumably cut a different deal if had wanted to keep a bigger share in ICO North America’s assets and give up some of the potential future litigation proceeds. Clearly ICO Global has therefore decided that these potential future litigation proceeds are more valuable than the share of the GEO satellite and spectrum assets that it could have obtained in exchange for them. That may be good news for ICO Global’s shareholders, since there are about 200M shares outstanding, implying the potential future litigation proceeds are equivalent to $3 per share (compared to a current trading price of $0.60) if Boeing’s appeal is unsuccessful. However, it doesn’t help the prospects for ATC if Craig McCaw, one of the savviest spectrum investors around, believes that ICO North America’s satellite and spectrum assets aren’t worth more than the $767M owed to its convertible debt holders. Our view continues to be that the ATC spectrum will eventually be put to use in terrestrial networks, the problem is just that ‘eventually’ might be quite a long time.