Kistler Reorganization Plan Hinges on Investors, NASA Work

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A U.S. bankruptcy court is expected to decide March 29 whether reusable-rocket company Kistler Aerospace Corp.’s proposed debt-restructuring plan meets the approval of the court and of Kistler’s debtors.

Kirkland, Wash.-based Kistler filed its reorganization proposal Feb. 24 with the U.S. Bankruptcy Court for the Western District of Washington in an effort to persuade its creditors that the company will be more valuable to them as a going concern than it would be if liquidated.

Kistler Chief Executive Officer Randy Brinkley said many of Kistler’s creditors, including several aerospace companies responsible for providing components for Kistler’s K-1 rocket, have signaled their approval of the reorganization.

Kistler is counting on its chief financial backer, Bay Harbour Management LLC of New York, to provide about $15 million in cash to permit Kistler to exit Chapter 11 bankruptcy. The money will give the company several months to negotiate further investments from Bay Harbour and other investors — strategic and financial — who will be approached, Brinkley said in a March 4 interview.

Kistler entered Chapter 11 bankruptcy in July 2003 having incurred $600 million in debt. The company is still some $500 million short of what it needs to complete its first K-1 reusable launch vehicle and perform a test launch from a site in Woomera, Australia.

Bay Harbour Management Director Doug Teitelbaum, who has been the principal backer of Kistler, did not return e-mails seeking comment on how much Bay Harbour — a specialist in distressed-company bailouts — would be willing to invest in Kistler in the future.

Kistler plans to issue up to 250 million shares of preferred stock to its priority creditors once out of bankruptcy court.

In the reorganization proposal submitted to the bankruptcy court, Kistler says the K-1’s design is 85 percent complete, and its construction 75 percent complete. Aerojet General Corp. of Sacramento, Calif., and Northrop Grumman Corp. of Los Angeles are the two principal K-1 contractors , and also are among Kistler’s biggest creditors.

Kistler said it hired accounting firm Ernst & Young LLP to evaluate its post-bankruptcy value . The evaluation concluded that if Kistler secures the funding needed to complete its K-1 rocket, and if it wins a key NASA contract to resupply the international space station and its initial launches are successful, the company would be valued at between $112 million and $175 million.

An analysis of what the company would be worth to creditors in the event it entered Chapter 7 liquidation concluded that after court costs and other expenses, and once its priority claims were paid, no more than $3.9 million would be left for creditors to fight over.

NASA is expected to solicit bids this year for contracts to provide two-way supply transport for the international space station. The agency intends to spend roughly $160 million on that program in 2006.

Kistler will need to win a piece of that contract to meet its business plan and attract investors. An inaugural launch of the two-stage K-1 could occur in 2007. Brinkley said his company’s planning assumes that the K-1 rocket will win at least some of the NASA business.

NASA had signaled its willingness to contract with Kistler for a demonstration launch of the K-1 but then backed off after a competitor, Space Exploration Technologies of El Segundo, Calif., protested the pending sole-source deal.

In addition to Kistler’s K-1 and Space Exploration Technologies’ Falcon, several other vehicles are likely candidates for NASA’s space station-resupply money. Russia’s manned Soyuz capsules and unmanned Progress supply ships are likely to be considered, as are European and Japanese unmanned supply vehicles and others likely to be proposed by Lockheed Martin Corp. and Boeing Co.