Earth Imagery Firm RapidEye Seeking Bankruptcy Protection

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PARIS — Germany’s pioneering RapidEye Earth imagery provider, which has taken the privatization of satellite Earth imagery perhaps further than any other company, has filed for Germany’s equivalent of Chapter 11 bankruptcy protection after breaching several of its loan covenants, RapidEye Chief Executive Wolfgang Biedermann said June 2.

Brandenberg-based RapidEye, whose constellation of five 150-kilogram optical Earth observation satellites was launched in August 2008, will continue operations and expects to emerge from a court-supervised restructuring with a more manageable debt, Biedermann said.

In an interview, Biedermann said RapidEye, which has never sought to hide the difficulties of a business model without a major long-term government customer guarantee, is confident that its principal financial sponsors are willing to reorganize the company’s debt profile to allow the business to proceed. Whether that will include new ownership as part of the insolvency proceedings, he said, is unknown.

“Our financial sponsors felt our overall level of debt was too high for the current business,” Biedermann said. “They looked at the business and our prospects — it’s true we are heavily leveraged — and said [RapidEye’s revenue] is not adequate. We did miss a couple of covenants.”

RapidEye’s core financial consortium includes Germany’s KfW and Commerzbank and Canada’s Export Development Corp. The Canadian entity’s role is explained by the fact that MDA Corp. of Richmond, British Columbia, is the prime contractor for the RapidEye system, even if Surrey Satellite Technology Ltd. of Britain built the five RapidEye satellites.

Biedermann said these three financial backers, which provided about half of the 160 million euros ($232 million) that RapidEye raised to start its business, have indicated they are not abandoning the company and are willing to renegotiate the terms of the current loans.

In addition to the banks, RapidEye received a grant of about 15 million euros from Germany’s space agency, DLR, which is repayable over five years in the form of imagery. Biedermann said the company continues to deliver on that contract.

Another grant, totaling some 37 million euros, came from the State of Brandenburg in exchange for RapidEye’s creating 130 jobs in that region for at least five years. This arrangement is also being respected, Biedermann said, and it is one reason RapidEye has only limited maneuvering room in which to cut costs.

On the revenue side, RapidEye missed a couple of large contracts it had counted on in 2010 after a slow start of business in late 2008 and early 2009. The company reported nearly 10 million euros in 2009 revenue because of early glitches that required recalibrating its satellites.

2010 was supposed to be the year when RapidEye would begin to see its operating cash flow match and then exceed its expenses. Total revenue for that to happen had been projected at 25 million euros. But 2010 revenue fell far short of that mark, coming in at nearly 14 million euros.

“We missed three major contracts that we had anticipated winning,” Biedermann said. “In some of these cases we had letters of intent and we had been counting on this business. If there’s any good news in this it’s that the business did not go to competitors. The contracts were never concluded with anyone. But for us it was a problem.”

The company nonetheless reached operating cash flow break-even in late 2010. For 2011, Biedermann said, the company expects to report revenue of between 15 million and 18 million euros. “We have learned our lesson now and we are being very conservative in our estimates,” he said, even though the early months of the calendar year in the Northern Hemisphere, where most RapidEye customers are located, is usually the lowest part of the year in terms of revenue.

Biedermann said that perhaps the biggest near-term challenge is reassuring current and prospective customers that the German bankruptcy law now governing RapidEye’s restructuring is similar to Chapter 11 of the U.S. Bankruptcy Code. The goal of the procedure is to enable the company to reorganize on firmer financial footing and to return to business for the long term. He said the five satellites are healthy in orbit — the constellation includes an in-orbit spare — and that a recent assessment concluded the spacecraft would continue to operate to 2018 or 2019, which is longer than originally forecast. Absent an in-orbit anomaly, that should give the company more financial breathing room before it must begin a fresh capital spending cycle to replace the constellation.

“Our creditors have expressed a strong interest in having us continue in business,” Biedermann said. “Because we only have a few entities as our creditors, the insolvency procedure should be relatively straightforward. I am hopeful we can emerge from it in a matter of weeks.”

 

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