World Satellite Business Week | Loan Covenants Put NewSat in Chicken-and-Egg Situation

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PARIS — Australian startup broadband satellite operator NewSat Ltd. on Sept. 10 said it is not in a “work-out” situation with its major lenders, the U.S. and French export-credit agencies, but that the company is going through an acknowledged rough period as it builds its first satellite and contends with lower revenues in its historic teleport business.

NewSat Chief Executive Adrian Ballintine said the company had been faced with a classic chicken-and-egg situation in which lenders demanded technical and management expertise as a condition of their loans, all the while setting loan covenants that limited NewSat’s ability to hire new talent.

NewSat’s first satellite, Jabiru-1, is under construction by Lockheed Martin Space Systems of Sunnyvale, California, and scheduled for launch in late 2015 or early 2016.

NewSat received some $400 million in loans and loan guarantees from the U.S. Export-Import Bank and from France’s Coface.

These lenders informed NewSat that there was a danger of a breach of the covenants earlier this year as NewSat’s teleport business struggled with declining revenue, notably following the U.S. military withdrawal from Afghanistan and Iraq.

The agencies blocked NewSat’s access to the financing pending the company’s raising of $40 million by Nov. 30. Until then, NewSat said, it will be using its own cash reserves to keep the satellite’s construction on schedule.

NewSat reported revenue of 31.3 million Australian dollars ($29.5 million) for the year ending June 30, down 20 percent from the previous year. The company says it has booked more than 600 million Australian dollars in prelaunch orders for Jabiru-1.

Addressing the World Satellite Business Week conference in Paris organized by Euroconsult, Ballantine said the Ex-Im and Coface loans include “a lot of covenants, a lot of rules, and we’re going to have to tighten up our procedures” to meet the terms of the loans and guarantees.