Layoffs, Emergency Financing Latest Measures Taken To Keep Company Alive

The situation at Orbcomm Global Ltd. [OSC] appears to have gone from bad to worse. The company last week underwent another layoff of employees, with approximately 100 people released.

It is the second time in less than a month that Dulles, Va.-based provider of global messaging and data communications services has reduced its staff in the United States, bringing the total layoffs to 260 employees.

“Orbcomm believes that the actions announced today will allow it to better focus its resources on providing productivity-enhancing data communications services to its major customers worldwide,” said Scott Webster, chairman and CEO of Orbcomm. “Orbcomm believes that the reduction in force, while unfortunate, will not divert Orbcomm from maintaining and operating the Orbcomm satellite system.”

The layoffs underscore an apparent cash flow problem that the company is struggling with right now. Orbcomm also announced that “due to the limited funds available to Orbcomm, it is highly unlikely that the company will make the interest payments scheduled to be paid on Aug. 15, 2000 on its outstanding senior notes.”

The inability to make the interest payments comes after the announcement of emergency financing raised for the struggling company.

“[Orbcomm’s] current partners have agreed on limited interim debt financing that is expected to provide the company with $17 million in additional cash from an affiliate of Teleglobe Inc. [TGE], which will support near-term operations. Teleglobe will immediately provide a portion of the financing in the form of a secured loan and will provide the remainder in a form determined by Teleglobe,” the company stated in a release last week.

…An Uncertain Future

In the midst of this financial turmoil, Webster continues to remain as optimistic as possible.

“I don’t anticipate the other shoe to drop,” said Webster. That other shoe refers to the possibility of having to declare bankruptcy if it cannot meet the terms of its senior notes outstanding.

“The [Aug. 15] payment has a grace period on it,” said Webster. “Our counsel says that [forcing a bankruptcy], in practice, rarely, if ever happens. The next step is that we engage in negotiations. I’m told that of the high-yield debt deals that have been done in the last five years, wholly 50 percent have been restructured. This kind of thing is not uncommon at all. My expectation is that we’ll just work with the bondholders through September. Ideally, when October comes, we’ll have a new deal.”

However, Wall Street does not share Webster’s optimism.

“An Orbcomm release [last week] confirms what Orbital Sciences Corp. [ORB] management has spent the past year trying to avoid saying – the unit is stumbling,” reported New York-based investment firm C.E. Unterberg, Towbin. “We believe the string of layoffs should serve as a barometer as to how difficult the current operating climate must be for the unit as well as provide insight as to how deep Teleglobe’s pockets are.”

Based on numbers generated in-house at the investment firm, C.E. Unterberg questions whether the $17 million will get them through the end of the year.

“We believe Orbcomm has little existing liquidity,” reported C.E. Unterberg. “Consequently, we believe Teleglobe’s injection extends the company’s cash life to late third quarter or early fourth quarter.”

Webster, however, is expecting Orbcomm’s cash reserves to last a little longer than that. “Most of the rest of the year is covered by the money we’ve got in hand,” he said.

With that in mind, Orbcomm has made some adjustments to its current business plan. According to Webster, the current plan assumes no revenue growth. But he is not expecting a drop off in customers.

“I have had quite remarkable positive reactions from customers who have indicated that they would wait and see how the company’s financial picture clears up,” said Webster. “But there has been nobody, as far as I know, that has gone away or announced different plans. I think we will face a lull in our installations into late third quarter, when I hope we have very good news that gets people back on schedule.”

But Unterberg questions whether those customers are there to begin with.

“It continues to be our belief that Orbcomm’s order count is misrepresented, representing IDIQ (indefinite quantity, indefinite delivery) contracts as opposed to firm orders. If the company did have the firm order level that it indicates, we doubt the company would be in its current financial bind as the story would be infinitely more sellable,” Unterberg reported.

…Industry-Wide Financing Problems Looming?

The problems that Orbcomm currently is facing could resonate throughout the little LEO (low-Earth-orbit) satellite community.

“There are two or three other Little LEO systems that have been hoping to proceed with similar systems,” said Roger Rusch, president of Palos Verdes, Calif.-based satellite consultancy TelAstra Inc.

“I think the problems of Orbcomm indicate that the market is small and it takes a long time to gather those customers,” Rusch added. “It would not be wise to invest more money in capacity until someone has demonstrated success. I would be surprised if the proposed competitors can raise money for new systems under these circumstances.”