PARIS — The U.S. Export-Import Bank insists it may yet recover part of its more than $100 million loss following the bankruptcy of customer NewSat Ltd. and NewSat’s subsequent rejection of its satellite construction contract with Lockheed Martin.
In a June 1 response to SpaceNews inquiries and June 3 testimony before a U.S. congressional committee, Ex-Im officials declined to disclose the legal mechanism by which they might recover the bank’s investment through the sale of the nearly completed satellite.
The Delaware Bankruptcy Court ruled May 22 that the NewSat contract with Lockheed Martin for the Jabiru-1 telecommunications satellite was no longer in force because NewSat, Ex-Im and Lockheed Martin had failed to resolve their difference by a mutually agreed May 18 deadline, and NewSat was unable to pay past-due bills to Lockheed.
That appeared to leave Ex-Im with a security interest in a company that no longer had a legal claim on the satellite. Using mainly Ex-Im funds, NewSat has invested some $193 million in the satellite so far.
In parallel decisions, the court approved “standstill” agreements with other NewSat suppliers, including the Arianespace launch consortium of Evry, France, and ground antenna provider General Dynamics Satcom Technologies Inc. of Duluth, Georgia.
The court approved the Arianespace and General Dynamics petitions that they be able to stop work on the NewSat project until at least July 15 without penalty, after which the company’s administrators presumably will decide whether to assume or reject the contracts.
The value of the Arianespace contract for a late-2016 launch in the upper position of the company’s Ariane 5 heavy-lift rocket depends in part on whether Arianespace has maintained a late-2016 launch slot.
“Arianespace retains the right to modify the launch schedule,” as allowed in the original December 2011 launch-service contract with NewSat, the court said a June 3 order. NewSat’s repeated funding problems have caused Arianespace to move the launch date more than once.
Arianespace Chief Executive Stephane Israel said June 2 during a press briefing at the CommunicAsia conference in Singapore that the company was fully booked until 2017. He declined to address whether NewSat still had a valid claim to a late-2016 launch.
The French export-credit agency, Coface, arranged French government-backed guarantees for NewSat loans to cover the Arianespace milestone payments.
Ex-Im’s potential loss is much larger than Coface’s, and while the May 21 court order appeared to take the satellite away from NewSat and give it to Lockheed Martin, Ex-Im officials appear to believe this is not the case.
Ex-Im President Fred P. Hochberg, in testimony to the U.S. House Committee on Financial Services, said Ex-Im and NewSat “are working through a solution. We are nowhere near a solution at this point.”
Hochberg agreed that Ex-Im decided not to invest further in NewSat, an investment that would have permitted the company retain the Lockheed Martin contract.
Hochberg said Ex-Im did not want to invest further in NewSat until “there was going to be a buyer who was actually going to take” the satellite.
“We had a May 18 deadline and we could not find a clear buyer by May 18. We asked for a few more days and Lockheed Martin refused. This transaction is still in negotiation. We are still negotiating for an ultimate buyer of the satellite,” Hochberg said.
According to Hochberg, “We are fully backed by NewSat and NewSat still has control over that satellite. NewSat may be bankrupt but we are secured by NewSat. And frankly, when we had an opportunity to simply ‘throw good money after bad,’ without a clear exit plan, we chose not to do that.”
Hochberg defended Ex-Im’s underwriting of NewSat, which was controversial in the industry at the time. “I think we did a thorough due diligence and underwriting on that transaction,” he said. “It was voted by the [Ex-Im] board unanimously in 2012. There was a re-vote in 2013, when there was a change in the transaction.
“Every loan we make is not going to perform perfectly. This is one that, frankly, right now, is troubled.”
Hochberg evaded questions of the satellite’s current ownership, saying only that “Lockheed Martin has possession of the satellite.”
He said Ex-Im typically retains no collateral in an unfinished product. “We would have had collateral at the completion of the satellite, not while it’s being constructed,” Hochberg said.
“We’re working towards a solution,” he said. “This is not over yet.”
The Ex-Im Bank’s charter expires June 30 unless the Congress reauthorizes it. Defending the bank’s practices, Hochberg said that in addition to returning several hundred million dollars per year to the U.S. treasury from Ex-Im profit — $675 million in 2014 — the agency has a default rate of just 0.167 percent through March 2015 and has $5 billion in reserves that are more than enough to cover potential losses.