U.S. and French Export-credit Agencies Keep Spigots Open for Space Ventures

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PARIS — Representatives of the U.S. and French export-credit agencies gave no sign of pulling back on their support for their domestic rocket and satellite builders despite ongoing concerns by private-sector bankers that the agencies are funding projects that cannot survive.

The allegation that export-credit agency (ECA) low-interest financing stimulates projects of dubious long-term solvency is not new. But it has assumed a new relevance with the spate of emerging-market nations using ECA support for telecommunications satellite systems whose national markets raise questions of their survivability.

These nations, in Latin America, Central Asia, East Asia and Africa, have been able to secure ECA-backed loans at rates substantially below what they could get from commercial banks — if they could get a loan in the first place. It is not just the U.S. and French ECAs: Agencies in Canada, China and elsewhere have also been active on behalf of their domestic manufacturers.

Emerging markets are not the only concern. The U.S.-based owners of two constellations of low-orbiting mobile communications satellites have secured or requested that covenants in their ECA-backed loans be loosened. Covington, La.-based Globalstar in August secured an agreement from France’s ECA, Coface, to waive many near-term financial obligations embedded in the deal.

McLean, Va.-based Iridium Communications, which is building a $3 billion second-generation constellation with financing also provided by Coface, told investors in August that it likely would seek amendments to its Coface facility.

The U.S. Export-Import Bank and Coface officials attending the World Satellite Business Week conference here Sept. 9-13 organized by Euroconsult said they are not in the habit of renegotiating payment terms and do not expect a rash of defaults in the satellite sector.

Regine Schapiro, head of Coface’s energy, telecom and space unit, did not specifically mention Globalstar or Iridium but said Coface does its utmost to keep a project alive once it has backed it.

“If the risk of default will be there, we are keen on finding a way to maintain the business and avoid default,” Schapiro said. “It will be linked to more covenants or the balance sheet, with more requirements on cash flows. But we will do our best to avoid a default, because it’s the only way to get the money back.”

John Schuster, Ex-Im Bank vice president for project and structured finance, said his team examines each project for future solvency risks before agreeing to the loans — a process he described as rigorous, time-consuming and often uncomfortable for the borrower.

“As far as payment difficulties, if we need to reschedule payments, then things have gotten pretty bad,” Schuster said. The Ex-Im Bank expects its total satellite financings in 2013 will surpass $1 billion for the third consecutive year.

Ex-Im’s involvement has been accelerated in part by the emergence of Space Exploration Technologies Corp. (SpaceX) of Hawthorne, Calif., whose Falcon 9 v1.1 rocket has secured more than $1 billion in commercial orders despite its never having flown. The vehicle is scheduled to make its debut flight, which has been delayed repeatedly, in late September.

Schuster said Ex-Im has agreed to back SpaceX despite the missing track record because the Falcon 9 rocket has won the backing of the world’s space insurance underwriters. Insurance underwriter support has allowed SpaceX customers to insure their launches at premium rates that are relatively low under the circumstances and reflect the abundance of capital in this niche market.

Ex-Im has supported financing for three SpaceX launch contracts so far, and two more are under negotiation, Schuster said.

The latest Ex-Im loan, valued at $105.4 million, was given to commercial satellite fleet operator Spacecom of Israel, whose Amos 6 satellite is being built by Israel Aerospace Industries but whose launch will be aboard SpaceX’s Falcon 9.

Industry officials said the loan covers the launch cost of about $58 million, plus the cost of U.S.-built satellite solar arrays, a U.S. insurance broker and some $25 million in insurance coverage even if much of the coverage will be provided by non-U.S. underwriters.

Schuster agreed that the main difference in the Ex-Im satellite profile today from a couple of years ago is that the bank is viewing more proposals from regional satellite operators.

Earlier this year, Ex-Im and Coface agreed to $399 million in loans and guarantees to startup satellite operator NewSat of Australia.

The ECA facilities, which carry an interest rate of about 2 percent, were made possible in part by NewSat’s backlog of customers for the satellite, which is being built by Lockheed Martin Space Systems and launch by the France-based Arianespace consortium.

“To raise that much financing for a satellite before launch — a lot of people though it couldn’t be done,” said James Murray, managing director of investment bank Morgan Stanley. Murray was one of several investment bankers who voiced concerns about ECA financing Sept. 10 during World Satellite Business Week.

Fred Turpin, a managing director of JP Morgan, said the ECAs “are not paying attention to the financial health” of the satellite operators they help finance. “They are only paying attention to shipments” of goods that are built by their domestic industries and that would not find export markets without ECA backing.