Iridium gets court OK of global settlement with Motorola, committee, lenders

By Rebecca Melvin

New York, May 20 - Iridium LLC obtained approval Tuesday of its 2008 global settlement, involving former parent Motorola Inc. and Iridium's secured and unsecured creditors.

The settlement, approved by the U.S. Bankruptcy Court for the Southern District of New York, resolves the significant pending issues in the case, namely Motorola's claims against the company and the adversary proceeding of the unsecured creditors against Motorola.

A key component of the settlement is that the secured lenders will receive more than half of the remaining estate, or about $34 million in cash and a 5% membership equity interest in Iridium Holdings, which includes any future distributions related to the membership interest.

Judge James Peck inquired about the value of the 5% interest. But he was told the current value consists of dividends that are distributed to the interest holder, and that the asset is difficult to evaluate as it depends on an understanding of the future plans for the satellite business after 2014.

To date, the estate has received about $500,000 relating to the 5% interest, stemming from three dividend payments, starting in 2006.

Iridium lenders include JPMorgan Chase Bank NA, BNP Paribas New York, Angelo, Gordon & Co., Bear, Stearns & Co. Inc., Liberty View Capital Management (now Neuberger Berman), Davidson Kempner Capital Management LLC, Deutsche Bank Trust Co. Americas, QVT Financial LP, Elliott Associates LP, Post Advisory Group, Stonehill Capital Management LLC.

Of the remaining $20 million available for distribution, unsecured creditors are expected to receive about $16 million, or 1% of their estimated claims.

Iridium counsel Michael Walsh of Weil Gotshal & Manges said the agreement represented a solution to a very complicated case, with all parties arguing to support their own claims for many years.

"Our goal was to simplify the case so that we could make distributions to creditors," Walsh said. "The settlement agreement and its complexities ended up at just 20 pages plus exhibit."

The only changes made to the final version of the settlement, dated May 13, from when it was first filed in April, were minor tweaks of language, he told the court.

Central to the agreement was the release of all parties, which was significant in that Motorola had significant claims against the company including $1.6 billion in pre-petition claims and a $675 million in post-petition administrative claim, Walsh said.

The agreement also incorporates aspects of the 2001 settlement with all objections withdrawn, and a significant distribution to secured lenders, he said.

Meanwhile, Iridium's statutory committee of unsecured creditors had sought to recover about $4.3 billion of claims against Motorola in the adversary proceeding.

They argued they were owed because Motorola was responsible for Iridium's financial collapse as it unloaded a poor business plan and high debt on the start-up.

To get the deal done, litigation administrative claims are being withheld until unsecured creditors obtain their 1%. If anything is left after that, then administrative claims from the attorneys and others will get paid.

Last August, Peck dismissed four of eight claims brought by the unsecured creditors, saying they failed to prove Iridium was insolvent leading up to its failed satellite phone system in 1998.

The creditors and Motorola entered into mediation last fall in an effort to reach a consensual agreement over the allegations that Motorola breached its contract of fiduciary duty.

Walsh also noted the role counsel played in getting the settlement: "The only way to get money to creditors is for the administrative claims to step back. We needed to do that to get a deal done," he said.

Unsecured claims are expected to be about $1.6 billion, consisting mostly of public notes and some additional unsecured claims, and $16 million will be distributed.

Iridium owned and operated a global telecommunications system. The company filed for bankruptcy on Aug. 13, 1999. Its Chapter 11 case number is 99-45005.

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