PARIS — U.S. satellite fleet operator EchoStar and its Mexican satellite-television partner are proposing to buy struggling Mexican satellite operator Satmex for $267 million in cash in a deal endorsed by Satmex management but still awaiting make-or-break approval by Satmex bondholders, “some of which … are opposed to the transaction,” EchoStar announced Feb. 26.
Englewood, Colo.-based EchoStar Satellite Services said winning Satmex bondholder backing is not the only potentially major hurdle that could scuttle the transaction. Other conditions include unspecified “actions with respect to the construction of a replacement satellite for Satmex 5,” EchoStar said in its announcement.
EchoStar and MVS Comunicaciones, a large media conglomerate in Mexico and EchoStar’s partner in the Dish Mexico direct-to-home satellite television service, will create a joint venture to purchase Satmex. EchoStar did not disclose what its intended ownership stake would be.
Satelites Mexicanos, S.A. de C.V. has been trying to climb out of a deep financial hole since 2005, when it filed for Chapter 11 bankruptcy protection in the United States and an equivalent legal proceeding in Mexico.
When Satmex emerged from bankruptcy, it became clear the company needed to expand its three-satellite fleet to stay competitive but was unable to do so because of covenants attached to its debt. An attempted sale of the company in 2007 was canceled when none of the bidders agreed to the company’s stated minimum offer of $500 million.
Several of the bidders at the time said the terms under which the Mexican government has access to Satmex’s in-orbit capacity was among the factors that kept bids well below the $500 million threshold. EchoStar did not say whether a new arrangement with the Mexican government was part of the proposed sale.
Since the collapse of the proposed 2007 sale, Satmex has been trying, without success, to persuade its bondholders to permit the company to invest in a Satmex 7 satellite. Satmex spent about $4 million in 2008 to pay manufacturer Space Systems/Loral of Palo Alto, Calif., for initial Satmex 7 work. The contract has been stalled since then because Satmex’s debt holders have refused to release the company from its covenant obligations and their capital spending restrictions.
EchoStar said its purchase is contingent on “consents to modify or eliminate most of the covenants” embedded in Satmex’s senior secured debt.
Satmex operates three satellites.
Solidaridad 2, launched in 1994, has been in inclined orbit— meaning that, to save fuel and extend its life, it no longer is stabilized on its north-south axis – since 2008.
Satmex 5 has been operating without one of its two xenon-ion propulsion systems. In January, Satmex announced that the backup propulsion system failed and that Satmex 5 would rely on its conventional chemical propulsion system, whose fuel supply is more limited. The satellite was not insured against the loss of its xenon-ion system because of a history of failure on the early models of this Boeing-provided propulsion technology. Satmex estimated that Satmex 5 has enough fuel to last about 2.7 years.
Satmex 6, launched in 2006, is healthy in orbit.
Satmex reported revenue of $30.9 million for the three months ending Sept. 30, and said it had cash and equivalents totaling $95 million at that time. In its Feb. 26 announcement, EchoStar said Satmex’s cash now stands at $107 million. Coupled with the cash-purchase offer of $267 million, the proposed acquisition would result in “total cash of up to $374 million available for distribution to Satmex’s stakeholders,” EchoStar said.
Satmex backlog as of Sept. 30 was $240.3 million, down 7 percent from where it was June 30. Satmex’s biggest customer, accounting for 20 percent of the company’s revenue as of late 2009, is broadband-service provider Hughes Communications of Germantown, Md.
Hughes is shedding its satellite-lease contracts at a rate of 12 transponders per year – it currently has more than 90 transponders under lease, paying an average of $1.5 million per year per transponder – and moving its customers to the Hughes-owned Spaceway 3 Ka-band satellite.
