Gilat Satellite Networks (Nasdaq: GILTF) US subsidiary StarBand Communications filed its recovery plan with the US Bankruptcy Court in Delaware on Friday. The plan is designed to enable StarBand to emerge from Chapter 11 bankruptcy. Gilat owns 34% of StarBand.
Under the debt restructuring plan, the banking consortium, lead by Bank Leumi (TASE:LUMI), will convert a $113 million debt to shares. StarBand owes Bank Leumi $73 million, $20 million to First International Bank of Israel (TASE:FTIN1; FTIN5), and $20 million to Israel Discount Bank (TASE:DSCT).
The arrangement also stipulates that 85% of Starband's $90 million debt to Gilat will be converted to shares, and 15% to $14 million in convertible bonds. Under pressure from the banks, Gilat will inject $7 million into StarBand to stay in business. Gilat will also supply equipment and technology.
The court's approval of the plan will enable StarBand to emerge from bankruptcy. "Globes" reported a month ago that Gilat planned to rescue StarBand from Chapter 11, as part of Gilat's own recovery plan. In a letter to employees, Gilat CEO Oren Most wrote, "Gilat's management has decided to rescue StarBand from Chapter 11 bankruptcy protection, and the process has begun."
Gilat acquired its US distributor, Spacenet, in 1997 for $225 million in a share-swap. Gilat built StarBand on the Spacenet platform to provide high-speed Internet via satellite. StarBand found itself in financial trouble, as did Gilat, ending up in Chapter 11, but not before raising $175 million from its shareholders, and obtaining $113 million in credit from Israeli banks. Most decided to try to save StarBand as part of Gilat's own recovery plan.
StarBand's largest shareholders are Gilat, with a 34% stake, and EchoStar Communications (Nasdaq:DISH), with 37%. Gilat's holding in StarBand will now increase and the banks will also become major shareholders. The banks have already posted allowances for Gilat and StarBand's debts, and the debt arrangement should therefore not affect their financial reports.
Published by Globes [online] - www.globes.co.il - on August 17, 2003