Export Bank Guarantees are Large Part of Satellite Funding

More than a quarter of the $14.1 billion in bank credit facilities issued for satellite projects in the past 12 months have featured export-credit agency (ECA) backing, according to figures compiled by the New York law firm Milbank, Tweed, which is a regular adviser to satellite-sector companies.

Of seven ECA-backed deals totaling nearly $4 billion, all but one involved either France’s Coface ECA or the U.S. Export-Import Bank. The seventh, for the Pakistan Space Research Commission’s Paksat telecommunications satellite, was with the China Export-Import Bank and was valued at nearly 1.3 billion Chinese yuan, or $193 million.

Peter D. Nesgos, a Milbank, Tweed partner, said ECAs are a major presence in today’s satellite financing landscape. This has led to criticism that ECA credit distorts the satellite telecommunications market by enabling the survival of companies that the market has chosen not to support.

ECA Satellite Financing

Led by France’s Coface and the U.S. Export-Import Bank, export credit agencies have been behind nearly $4 billion in satellite project financing in the last 12 months alone. The deals include financing of satellite construction and launches for both startup and well-established satellite operators.

Source: Milbank, Tweed 

This charge has been directed particularly at the mobile satellite services market. Coface in the past two years has provided lifeline financial support totaling nearly $1.4 billion to two large low-orbiting constellations, Globalstar and Iridium, both of which previously emerged from Chapter 11 bankruptcy in the United States.

Henrik Nyblom, a managing director with financial analyst Nomura International, said Sept. 13 that the mobile satellite sector is overpopulated given its likely market prospects and will need to consolidate. With Globalstar and Iridium now virtually certain to develop their second-generation constellations, “in my view the market is not large enough” to support the current players, which include Inmarsat of London and Thuraya of Abu Dhabi.

Inmarsat Chief Executive Andrew Sukawaty has repeatedly decried the ECA backing for two of Inmarsat’s principal competitors, saying ECAs should not be in the business of determining who survives and who does not. Sukawaty, whose company received U.S. Export-Import Bank financing for its next-generation Ka-band satellites, called Global Xpress, distinguishes between companies seeking ECA support to lower their financing costs, and those that could not survive without such support.

In Sept. 13 remarks, Coface and Export-Import Bank officials defended their practices and made it clear that the satellite sector has their full attention and will receive backing in the future.

“We are not in a position to distort the market,” said Regine Schapiro, head of Coface’s telecom, energy and space unit. “In certain periods the market has not been in a position to loan money, and this leads to peaks in demand for ECA financing, including in the space field. “We study each file and apply strict criteria to the projects we review. I don’t see any distortion of the market in what we do.”

John Schuster, director of structured finance at the U.S. Export-Import Bank, said the bank’s record in past financings of satellite projects suggests that it has exercised prudent judgment about which ones to support. “We have a track record of service,” Schuster said. “Suggesting that we do not apply normal credit standards would be misleading.”

Schuster said that in 2009 in particular, there were few sources of financing available except for ECAs.

Schuster said the Ex-Im Bank’s backing of projects at Inmarsat and Spanish satellite fleet operator Hispasat, both of which are profitable and have regular cash flows, demonstrates that ECA financing is sometimes valuable even for companies with no immediate liquidity issues.

“The satellite industry is likely to be a source of demand for us for the foreseeable future,” Schuster said. “I see this, at least for the next two or three years, as being a pretty big part of the portfolio.”