In Re Iridium Operating LLC

Iridium Operating LLC (Iridium) (debtor) was a Delaware entity spun off from Motorola, Inc. (defendant) that spent years developing a global satellite-telecommunications system but collapsed into bankruptcy within nine months of activating service. In the four years before Iridium’s bankruptcy, Motorola provided substantial technical and financial support and received over $3.7 billion in contractual progress payments. Meanwhile, Iridium raised impressive amounts of debt and equity in the capital markets, projecting future cash flows primarily from the professional business-traveler market, and research showed robust demand. But when the system launched, the satellite service did not work with obstructions between the phone antenna and satellite, especially in high-rises and central business districts. Business travelers could not use the phones in cars without an extra antenna or inside buildings. After Iridium filed bankruptcy, the Statutory Committee of Unsecured Creditors (the committee) (plaintiff) sued Motorola, challenging the progress payments as fraudulent conveyances. Recovery required showing Iridium either was insolvent or had unreasonably small capital at the time. The court bifurcated the case to decide those questions separately. Experts for the committee used discounted-cash-flow analysis using adjusted cash-flow projections prepared for litigation to show Iridium was technically insolvent long before filing. Motorola countered with voluminous market data showing Iridium securities had nonetheless traded at prices showing substantial enterprise value in the four years before bankruptcy.