02.20.12

The default outcome…

Posted in Financials, Inmarsat, LightSquared, Operators, Regulatory, Spectrum at 11:10 pm by timfarrar

Today news has emerged that LightSquared have failed to make the $56.25M payment to Inmarsat that was due upon completion of the Phase 1 spectrum transition, which Inmarsat certified was complete on Saturday February 18. This development is hardly surprising, because as I indicated last week, LightSquared’s investors were adamantly opposed to the payment being made. LightSquared are claiming that there are “several matters to be resolved” before the payment is due, apparently suggesting that Inmarsat have not fitted filters to their own equipment as they were being paid to do in Phase 1, while Inmarsat are stating “categorically that we have fulfilled what was required on Phase 1 of the agreement”.

Intriguingly, Inmarsat apparently believe that it is not necessary to actually fit filters to their terminals in order to fulfil the Phase 1 conditions, simply that they must be willing to accept any interference generated by LightSquared’s terrestrial operations (which of course will not arise because LightSquared have been forbidden from actually operating a terrestrial network by the FCC). It would be strikingly cynical if Inmarsat hadn’t bothered to fit any filters (and as far as I know no equipment has been retrofitted to date), because they always believed that GPS interference issues would prevent LightSquared from actually getting into service. However, that certainly seems to be the most plausible interpretation of what has happened, because (independent of GPS) serious problems could arise with maritime and aeronautical safety services (on Inmarsat terminals without filters) if LightSquared did actually commence terrestrial operations at this point in time.

UPDATE (2/22): Inmarsat’s ATC team wanted me to know that they exist and have been working to develop ATC-resistant terminals. I know that some ATC-resistant terminals (e.g. IsatDataPro, ISatM2M, BGAN M2M, ISatPhone Pro) are already on the market, but my point above was that there has been no attempt to retrofit existing terminals used for maritime and aeronautical safety services. Indeed, Inmarsat told its partners in April 2011 that the timeline for introduction of SwiftBroadband aero safety services (which will provide ATC-resistance) “envisages flight trials in early 2013 leading to safety certification during 2014″.

As a result of LightSquared’s failure to make the payment, Inmarsat has issued a Notice of Default, which gives LightSquared 60 days to make the payment or else the Cooperation Agreement will be terminated. The key question now is whether the simple receipt of this Notice (as opposed to termination of the Cooperation Agreement itself) is sufficient to cause an Event of Default on LightSquared’s first lien debt. Although LightSquared are arguing that the Notice is invalid (because they claim Inmarsat have not fulfilled the Phase 1 requirements) that may ultimately be irrelevant if LightSquared’s investors now try to force the company into bankruptcy. I’m sure we will see a lot more news on this front in the next few days.

4 Comments »

  1. TMF Associates MSS blog » Going up… said,

    February 23, 2012 at 10:44 am

    [...] downturn and military pullback from Afghanistan. Now 2012 has started on an even worse note, with LightSquared defaulting on its $56.25M Feb 18 payment to [...]

  2. TMF Associates MSS blog » Negotiate to lose? said,

    February 27, 2012 at 12:01 pm

    [...] on Earth” and it appears that LightSquared are unlikely to prove the author wrong. I noted last week that LightSquared’s contract with Inmarsat apparently permitted Inmarsat to assert completion [...]

  3. TMF Associates MSS blog » Decisions, decisions… said,

    April 20, 2012 at 9:36 am

    [...] failed to perform its obligations under Phase 1 of the Cooperation Agreement (despite the fact that Inmarsat failed to retrofit any of its terminals with filters) and as a result Inmarsat is now saying there is “a high degree of confidence” that it [...]

  4. TMF Associates MSS blog » I did it my way… said,

    February 21, 2013 at 1:58 pm

    [...] on L-band services and a release of some of the cash previously received from LightSquared (and never spent on installing filters) could help to meet expectations in the next few years, even if GX does not live up to [...]

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