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An influx of private equity into the satellite communications sector in the last 10 years helped redefine the FSS landscape, and now the MSS sector and other areas of the satellite world may benefit from investors looking to capitalize on what is considered both a safe and profitable business. \u201cThe financial state of the satellite industry is quite strong, and I think its performance during the 2008\/2009 \u2018Great Recession\u2019 surprised many investors, but not us. We have been preaching to institutional investors for years now the recession resistivity of the satellite industry and its low correlation to the general economy,\u201d says Hoyt Davidson, managing partner, Near Earth LLC. \u201c\u2026 It certainly depends on the unique attributes of the specific company seeking financing and the sector in which they participate, but generally the investment-grade and high-yield debt markets are open to satellite companies where cash flows will support leverage, especially for refinancings of more expensive debt. The debt financing component of ViaSat\u2019s acquisition of WildBlue was a notable transaction last year. Total leverage ratios may move up slightly in 2010, but should remain well below 2007 levels. We would not expect to see many negative cash flow businesses close debt financings this year other than export credit agency backed loans for new satellite construction.\u201d<\/p>\n
In terms of financing trends going forward, \u201cBank lending is expected to be better than 2008\/2009 but remain constrained throughout much of 2010, especially for small and midcap companies, which is pretty much the entire industry. This reduced credit capacity is more systemic than a function of the particular merits of the borrower. Acquisition financings will continue to need more equity and less debt than in the 2007 and earlier periods. On the equity front, private equity and venture capital have been hard to attract, but there are signs of much improvement and plenty of cash on the sidelines,\u201d he says,\u201d Davidson adds.<\/p>\n
\u201cPrivate equity companies have a strong and continuing interest in satellite communications companies,\u201d says TelAstra president Roger Rusch. \u201cThis is a glamorous industry. The business is capital intensive and has prospects for high cash flows. I talk to dozens of hedge funds and private equity investors every year. Many are interested in equity participation, others are interested in debt or short selling. Many of the prospective investors are not steeped in the communications industry. They are experts in market timing and making leveraged trades with high payoff potential. Many of these investors are interested in special situations like distressed assets. Consequently, they have interest in situations that could abruptly turn very positive or very negative. The clear objective of all these investors is to make money. The romance of the industry gets their attention but their business is making a profit.\u201d <\/p>\n
When Globalstar unveiled in March 2009 that it had secured financing from Coface, France\u2019s export credit agency, to support the completion of its next-generation satellite system, competitors initially labeled it a \u201cbailout,\u201d but now those same companies have praised the funding avenue as the only logical way to finance new satellites. The $586 million credit facility secured by Coface, was combined with funding from other sources \u2014 a registered direct offering of convertible debt and warrants and a deposit by Thermo Funding, the majority shareholder of Globalstar, to cover the $738 million needed to fully fund the next-generation network and ground facilities. The financing also will facilitate the introduction of Globalstar\u2019s next-generation interface chipsets. \u201cWith this funding, we have the resources needed to deploy a new constellation of satellites designed to last beyond 2025 and to build the supporting ground infrastructure that will position us to be first to market with a host of advanced IP-based mobile satellite services years ahead of our primary competition,\u201d Jay Monroe, chairman and CEO of Globalstar, said in July.<\/p>\n
Globalstar now looks like a pioneer, as other companies have followed with Coface-backed agreements. In December, SES secured an export credit funding facility worth about 523 million euros ($749.5 million) from Coface to finance four new satellites \u2014 Astra 2E, Astra A 2F, Astra 2G and Astra 5B that will be manufactured by Astrium. Also in December, Avanti Communications put the financing in place for its Hylas 2 satellites using, debt facilities of 194 million British pounds ($313.4 million) in aggregate provided by The Export-Import Bank of the United States and Coface, acting as a guarantor. Hylas 2 is set to debut in the first half of 2012. Avanti CEO David Williams said in January that the Hylas 2 financing will be \u201ctransformational\u201d for Avanti. \u201cIt makes us safer but also potentially much more profitable. This is a very good transaction all round. It takes our profit potential from about 30 million pounds ($48 million) up to about 150 million pounds ($239.8 million). The equity issue only dilutes shareholders by about 32 percent, but our profit potential increases by 400 percent. It also means that we can take a different type of marketing approach. We are now a much larger, more diversified company with total capital deployed at today\u2019s prices of 550 million pounds ($879.3 million).<\/p>\n
Analysts see more satellite companies looking at these kinds of deals in the future. \u201cWhile the trend in the financial markets will be in the direction of greater openness, funding will continue to be somewhat tight, which is one of the reasons that there will be continued resort to export credit agency funding whenever possible, even for operators that in the past would not necessarily have moved in that direction,\u201d says Maury Mechanick, counsel with White & Case. \u201cThe impact of the American Recovery and Reinvestment Act (ARRA) in the United States also needs to be considered, although its actual impact is somewhat complicated to assess. While it appears increasingly unlikely that much if any of the money set aside for telecom\/broadband infrastructure will find its way to the satellite sector, the availability of that funding for non-satellite projects could reduce their demand for more conventional funding sources, which could leave those sources more available for satellite projects,\u201d he says. \u201c<\/p>\n
Globalstar rival Iridium also could be looking at this type of funding for its Next constellation, \u201cIridium is definitely a player we\u2019re going to hear about. In total, its Next constellation is expected to require an investment of $2.7 billion, of which 35 percent (around $1 billion) will have to be financed through external capital,\u201d says Maxime Baudry, a satellite analyst at Idate. \u201cFinding this investment is probably going to be a challenge, in particular with the current economic context, but this is not impossible. Globalstar and SES proved it,\u201d he says.<\/p>\n
\u201cFollowing on the Globalstar Coface-backed debt financing, we would expect to see an even larger export credit agency backed debt financing for Iridium this year, perhaps in a few months,\u201d Davidson says. \u201cWith its Series A and B preferred stock coming up for redemption in April, the Terrestar balance sheet is ripe for restructuring, but the timing and nature of a financing is really controlled by its major shareholders, principally Harbinger and EchoStar. We would expect Terrestar to continue to be supported by its major shareholders given its operational progress and the significant value of its ATC spectrum.<\/p>\n
Outside of Globalstar and Iridium, the other MSS players could be facing some type of consolidation similar to what the FSS sector experience. In March, Harbinger Capital Partners, which also holds stakes in TerreStar and Inmarsat, completed its acquisition of SkyTerra Communications for about $262.5 million in cash. Harbinger also committed to spend billions of dollars to deploy a nationwide mobile-broadband network, and Tim Farrar, principal of TMF Associates, says rather than consolidation, Harbinger\u2019s actions \u201cdemonstrate their belief in the value of spectrum, \u2026 [but] it\u2019s not clear yet whether Harbinger\u2019s involvement will lead to consolidation. To date it\u2019s been more the opposite \u2014 all the money coming into the MSS sector has kept companies afloat that otherwise would have had to merge or disappear. However the traditional MSS market is still a good fit for private equity \u2014 steady growing cash flows in a market with about 8 percent annual revenue growth is attractive when valuations are not distorted by spectrum.\u201d But Farrar did offer one note of caution. \u201cThough Harbinger is acting a bit like a private equity firm in building and operating a network, other people involved in spectrum are hedge funds, so it\u2019s a trade not a long-term hold. If they find a buyer for the spectrum and can just abandon the satellite services then that would be fine.\u201d<\/p>\n
The MSS sector is in need of consolidation, says Rusch, but the investor interest lies more in the spectrum assets. \u201cThere is excitement about space-based mobile but also a degree of caution. Many investors are scratching their heads and trying to decide whether this is a business with long-term prospects. Almost every investor that has discussed this with me has been focused on the spectrum value. My own view has been that there is no value to the spectrum per se unless someone can build a profitable business around it. However, now that the FCC is considering repurposing the spectrum for terrestrial use the raw spectrum might actually be fungible. The later situation would require the approval of Congress and those legislators may want to auction off the spectrum to pay down the deficit. I would certainly expect the other wireless carriers to be outraged that the satellite operators could receive windfall profits from spectrum when the satellite operators have not been able to put the spectrum to profitable use. The cellular operators protested the FCC actions when ATC was first proposed because the cellular operators had been subjected to high licensing fees through the auction process,\u201d he says.<\/p>\n
The FSS players also are looking at different ways to finance projects \u2014 as well as provide some of the alternative financing themselves. In November, SES made a $75 million investment in 03b Networks, acquiring 30 percent of the broadband Internet startup. Other O3b investors include Google and Liberty Media. \u201cThe SES investment in O3b is an important step forward in O3b\u2019s capital raising efforts, yet the race is not yet won for O3b in this area,\u201d says Patrick French, senior satellite analyst at NSR. \u201cStill, the SES investment will no doubt have the added value of lending credence and credibility to the O3b business plan and could well encourage other investors, possibly banks or private equity, to step up to the plate to finish the job.\u201d<\/p>\n
In December 2008, Intelsat formed a joint venture, Intelsat New Dawn, with South Africa\u2019s Convergence Partners to finance a $250 million satellite project. About 15 percent of the financing will come from equity, with Intelsat\u2019s stake amounting to about $25 million. The Convergence Partners-led group, which also includes Altirah Telecoms, a joint venture between private equity and hedge fund firm, Altirah Capital and the Oppenheimer Family Fund, will contribute the remainder of the equity stake. The rest of the satellite funding, about 85 percent of the total, will come from debt in the form of non-recourse project financing provided by African institutions. Nedbank Capital, part of the Nedbank Group (one of South Africa\u2019s largest banking groups) and a telecom project financier in South Africa, arranged the debt financing. Nedbank and the Industrial Development Corp. of South Africa, a self-financing national development finance institution, are the largest participants in the debt funding consortium. \u201cThis type of project financing has never been done before,\u201d Intelsat CEO David McGlade said at the time. \u201cThe way we brought in a local partner like this while using South African banks is an absolute first. Convergence Partners is a good partner and we have been talking to them and planning this deal for two years. They have a lot of connections in the marketplace. I think it\u2019s always a good thing to support the local economy.\u201dAll the signs are positive for the satellite industry. It seems as we emerge from the recession, access to finance will be there. While there is no such thing as a safe bet, satellite-based investments will remain attractive. Even during the recession, satellite companies found ways to gain financing. This bodes well for future projects.<\/p>\n
\nJason Bates is the Editor of Via Satellite magazine. Mark Holmes is Via Satellite\u2019s Associate Editor.<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"
After helping to reshape the FSS landscape, investors took a step back from satellite during the economic downturn. Now old and new investors are being lured back by promising opportunities. An influx of private equity into the satellite communications sector in the last 10 years helped redefine the FSS landscape, and now the MSS sector […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[2],"tags":[],"class_list":["post-87026","post","type-post","status-publish","format-standard","hentry","category-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/87026"}],"collection":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/comments?post=87026"}],"version-history":[{"count":0,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/87026\/revisions"}],"wp:attachment":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media?parent=87026"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/categories?post=87026"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/tags?post=87026"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}