EchoStar Begins Moving Satellite Toward Mexican Slot

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With the U.S. Federal Communications Commission’s permission, EchoStar has begun moving one of its aging satellites across the geostationary arc toward a Mexican orbital slot even without final U.S. regulatory approval of the Mexican destination — hoping U.S. authorities will reverse their previous opposition to the move in time for EchoStar to meet a July 10 Mexican regulatory deadline.

The satellite is intended to begin business for a startup Mexican direct-broadcast satellite operator, QuetzSat, which is backed by Littleton, Colo.-based EchoStar Communications Corp., SES Global of Luxembourg and several other companies.

QuetzSat’s creation, which the Mexican government has urged U.S. regulators to support, is occurring even as the Mexican government weighs whether to salvage the country’s existing satellite-fleet operator, Satelites Mexicanos, S.A. de C.V., known as Satmex.

Satmex filed for bankruptcy protection under Mexican law June 29, despite opposition to that move by its U.S. creditors. These creditors, who hold most of Satmex’s debt, say they are willing to invest up to $55 million immediately in Satmex to permit the launch of an already-built satellite that, they say, is crucial to Satmex’s ability to survive.

The U.S. creditors say filing for Mexico’s equivalent of bankruptcy instead of filing for bankruptcy in the United States will make it less likely that they will be able to make the same cash infusion in time to keep Satmex from failing.

The movement of the EchoStar 4 satellite to the Mexican slot is intended to fulfill a regulatory requirement needed to reserve a Mexican orbital position at 77 degrees west longitude and then provide start-up services for QuetzSat until it orders its own satellite.

The U.S. Federal Communications Commission (FCC) has rejected EchoStar’s plans, saying they serve no U.S. public interest. EchoStar filed an emergency appeal via a June 10 letter to the FCC.

The transit of EchoStar 4 from its registered slot over the United States to the Mexican position at 77 degrees west is something that will take nearly a month. If EchoStar waits until it wins its emergency appeal or exhausts its FCC options, it will be too late to make the July 10 deadline.

Instead of waiting, EchoStar won FCC approval June 17 to move EchoStar 4 temporarily to EchoStar’s 61.35 degrees west location. Jacqueline Ponti, spokeswoman for the FCC’s satellite division, said July 1 that EchoStar’s appeal of the commission’s earlier denial of the Mexican destination still is pending. Whether it would be decided in time for the July 10 deadline, she could not predict .

EchoStar has had a much easier time winning FCC approval to move the EchoStar 5 satellite into a Canadian orbital slot on behalf of a Canadian start-up company called Ciel Satellite Communications, in which SES Global also has part ownership.

On June 30 the FCC approved the move of EchoStar 5 to Ciel’s Canada-registered 129 degrees west position, where it must be in operation by Aug. 25 to meet Canadian and international regulatory deadlines.

EchoStar 5 will not be used for Canadian broadcasting, but to provide high-definition television programming to EchoStar’s U.S. customers. However, it will occupy the Canadian orbital position long enough for Ciel to build and launch its own satellite by late 2008.

If the Satmex situation is not cleared up soon, QuetzSat and other Satmex competitors may end up reaping the benefits as Satmex’s customers leave the ailing operator. Satmex’s U.S. creditors say the customer leakage already has begun, in part because Satmex’s two aging satellites are incapable of meeting today’s demand.

The new Satmex 6 satellite has been in storage since October 2003 at Europe’s French Guiana spaceport, awaiting a final cash payment to permit launch aboard an Ariane 5 rocket. In May, Satmex’s U.S. creditors sought to force the company to file for Chapter 11 bankruptcy protection in a New York court.

The U.S. group, which holds nearly three-quarters of Satmex’s $523 million debt, had sought to avert a bankruptcy filing in Mexico because it may not permit the same kind of early cash infusion that is available under U.S. Chapter 11 bankruptcy law.

Under U.S. bankruptcy statutes, creditors can provide what is known as Debtor-In-Possession, or DIP, financing to permit a struggling company to keep its business afloat even as it seeks to reorganize its finances under a U.S. bankruptcy court’s protection.

Under Mexican law, according to officials affiliated with the U.S. creditors, DIP financing is not an option.

Despite the offer of an immediate cash infusion, Satmex resisted the U.S. move and on June 29 filed for the Mexican version of Chapter 11, called concurso mercantil.

Whether the Mexican filing will preclude any Chapter 11 moves in the United States remains unclear.

Officials involved with the U.S. group say the Mexican government is concerned that a Chapter 11 filing in the United States may reduce the government’s chances of being repaid money it is owed by Satmex’s corporate parent, Servicios Corporativos.

In a June 30 statement, the U.S. creditors said they believe that “pressure from the Mexican government” led to the Mexican filing. They stressed that their plan for Satmex would not compromise the Servicios debt to the Mexican government.

“On the contrary, the creditors fully support the payment in full of the Mexican government’s … debt ahead of any distributions to Satmex shareholders,” the U.S. creditors said. “[T]he creditors are surprised” that the Mexican government would not seize the opportunity of the U.S. creditors’ cash offer.