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Why Globalstar Stock Just Popped 9%

By Rich Smith – Sep 2, 2021 at 10:31AM

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Globalstar is paying down its debt with the help of a friend.

What happened

Shares of satellite communications company Globalstar (GSAT 1.58%) jumped 9.5% as of 9:45 a.m. EDT Thursday -- but don't get too excited. It seems this pop was inspired by kind of a nonevent.

So what

This morning, Globalstar filed an 8-K update with the Securities and Exchange Commission, describing the receipt of "an additional advance payment of $37.5 million from a customer on substantially the same terms as the advance payment described in the Company's Current Report on Form 8-K filed on June 9, 2021. Globalstar will use the proceeds from the advance payment to repay a portion of the amount outstanding under its first lien credit facility."  

Backtracking this vague explanation through multiple filings, we find first that the June 9 payment was also for $37.5 million, and related to "the Terms Agreement described in its Annual Report on Form 10-K for the year ended December 31, 2020."  

Finally, the 10-K reveals that in February 2020 the company entered into an agreement with "a potential customer" for "assessment of a potential service."  

Satellite beaming message to Earth

"Hey, Houston! Did you hear? Globalstar just got another $37.5 million!" Image source: Getty Images.

Now what

Globalstar itself admits (in the 10-K) that none of these payments are (or will be) big enough to be "material" to the business. Nor can they be depended upon to continue in the future, because "the Terms Agreement may be terminated by the customer at any time in its sole discretion."

That being said, I have to wonder if $75 million in advance payments really is material to a company that only did $123 million in revenue over the past year. In any case, for the time being and while the payments continue, Globalstar is using them "to repay a portion of the amount outstanding under its first lien credit facility" -- i.e., to chip away at the company's $341 million debt load.

At the very least, that's a good thing for Globalstar -- maybe not good enough to justify a 9.5% pop, but less debt is still a positive for the stock.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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