Group - 1

BM-A

Summary
Iridium was financed purely by equity during the period June 1990 to June 1995. The financing strategy during this period was to raise 1.6 Billion USD as equity by 1995 followed by a debt round of 1.8 Billion USD. The equity financing targets were achieved by 1994 in the following sequence:1990- 1993 August 1993 Motorola invests 100 million USD into R & D Motorola and its 21 strategic partners raise a total of 800 million USD out of which Motorola contributes 270 million USD September 1994 Iridium achieved its equity financing targets by raising 734 million USD in a second Round The debt financing was scheduled for 1995. The initial plan was for debt-to-total capital ratio to be 50 percent but was revised to 60 percent by the bankers on seeing the demand for the equity and interest in the company.

Comments
1.) The equity targets were met successfully implying the investors found the companys prospects to be good and attractive. 2.) Motorola which was the promoter was trying to reduce its stake from 34% to 19%. It seems it was trying to reduce its exposure in the business even though it was the driving force behind the project. 3.) The strategic group of 21 partners all having a stake from the second round of equity financing indicates that Iridium could not find investors willing to take up a large stake, raising equity even though it diluted and complicated the ownership structure. 4.) The second round of equity was done sooner than planned. This indicates that the burn rate may have been higher than expected. 5.) Iridiums banker may not have estimated the risk of the project correctly in trying to load too much debt on the company. 6.) Interestingly Exhibit 12 shows that Motorola was receiving payments from Iridium for System Development including an 802 million USD payment in 1995. Combined with Motorola trying to reduce its stake and taking money out of Iridium in the form of development contracts, the 21 strategic partners exposure to risk would be much higher than anticipated at the time of financing.