Arbitration Loss Deals a Major Blow to Globalstar

by

PARIS — An arbitration panel has rejected mobile satellite services operator Globalstar’s claims against its satellite contractor, Thales Alenia Space, in a ruling that the two companies announced May 16 and 17, respectively.

The decision of the American Arbitration Association, which apparently came earlier in the week, deals a serious blow to Globalstar’s already delicate financial position.

In addition to finding that Globalstar is not entitled to demand that Thales Alenia Space build more satellites under the favorable terms of a previous contract, the arbitrators ordered Globalstar to pay its prime contractor 53 million euros ($69 million) in contract termination charges by June 9.

As of March 31, Covington, La.-based Globalstar, which in recent months has slashed its payroll and other operating costs to remain solvent, reported it had $7.7 million in unrestricted cash available to it, plus $3 million available from a debt facility guaranteed by the French export-credit agency, Coface, and $27.3 million remaining in contingent equity financed by Thermo.

Thermo Chairman Jay Monroe is Globalstar’s chief executive and has used Thermo resources to keep Globalstar afloat as it negotiates a transition from its current satellite constellation, which is no longer able to offer reliable voice links, to the second-generation system backed by the Coface guarantee.

In a May 10 conference call with investors, Monroe and Globalstar Controller Rebecca Clary said the company had enough financing to continue operating through the end of 2012. In the meantime, they said, the company would seek the additional debt financing needed to complete work on its second-generation constellation’s ground segment, and to finance new satellites.

That was before the arbitration ruling.

“We expect that the resolution of the Thales arbitration will be a significant driver to secure this financing, as the company’s long-term capital needs will then be more sharply defined,” Clary said during the conference call.

In their May 16 and May 17 announcements, Globalstar and Cannes, France-based Thales Alenia Space said the two companies would now work together to figure out how to proceed.

“The tribunal … ruled that Globalstar can only order more satellites on the basis of a mutually agreed price and contractual terms,” Thales Alenia Space said in its statement. Thales Alenia Space Chief Executive ReynaldSeznec said in a statement that the satellite builder is “interested in addressing the issues related to the purchase of additional satellites.”

Globalstar’s statement made glancing reference to the fact that an agreement with Thales Alenia Space is indispensable if Globalstar is to avoid “materially negative consequences … with respect to its debt agreements, ongoing work with Thales and business operations.”

In a statement that hinted at the antagonism that has developed between the two companies, Monroe said: “Having already paid over 450 million euros to Thales and having experienced satellite delivery delays approaching two years, we remain hopeful” of an agreement with the satellite builder. “Globalstar has been operating under extremely challenging circumstances for the past few years as a result of delayed deliveries and remains amenable to negotiating a positive resolution with Thales.”

Globalstar has paid for 24 second-generation satellites and had hoped to start building 23 more under a 2009 contract that the arbitration panel has now determined was canceled by Globalstar itself.

Eighteen of the 24 satellites are in orbit. The final six are awaiting launch aboard a Soyuz vehicle marketed by the Arianespace launch consortium of Evry, France. The launch is to occur from Russia’s BaikonurCosmodrome in Kazakhstan.

In a May 10 filing with the U.S. Securities and Exchange Commission (SEC), Globalstar said it had renegotiated its $586.3 million Coface-backed loan to delay the start of loan repayment by a year, to June 30, 2013, or eight months after the final group of six satellites is launched, whichever comes first.

From a loan repayment viewpoint, Globalstar’s interest is in launching the last of the 24 satellites no earlier than October.

The Coface loan covenants also include deadlines for bringing into service the 18 satellites launched aboard three Soyuz vehicles in October 2010 and July and December 2011.

 These satellites are taking longer than expected to enter service because Globalstar raised their orbits earlier than planned, thus slowing their orbital drift speed.

“This action reduced the company’s ability to change the final position of all 18 satellites by the [loan] deadline,” Globalstar said in its SEC filing. “As a result, the company may not fully comply with this nonfinancial covenant and is in the process of seeking a waiver.”

 

RELATED ARTICLES

Thales Alenia Rejects Globalstar Order as Dispute Drags On

Arbitration Scheduled for Globalstar, Thales Alenia Pricing Dispute