PARIS — Export-credit agency funding, which has played a major, and occasionally indispensable, role in recent satellite financings, is likely a long-term phenomenon and will become a fixture on the market for rich and poor satellite operators alike, financial analysts and satellite industry officials said Sept. 7 and 8.
Led by France’s Coface but including the U.S. Export-Import Bank, the Chinese government and the recent addition of Export Development Canada, export-credit agency (ECA) financing for satellite projects totaled less than $300 million in 2008 and then jumped to $3 billion in 2009 following the financial crisis that dried up the traditional credit and debt markets.
“It has gone from bespoke to a facility for all satellite operators to lower their cost of capital,” said Clifton Marriott, a managing director at Goldman Sachs, in Sept. 7 comments to the World Summit for Satellite Financing, organized here by Euroconsult. “Every company should try to take advantage of it, since it’s there. It has the potential to provide cheaper, orders of magnitude cheaper, financing.”
Figures compiled by launch services provider International Launch Services (ILS) of Reston, Va., show that export-credit agency backing of satellite projects totaled some $2.1 billion for 2010 as of Sept. 1.
Once reserved for companies that are financially struggling, export credit recently has been sought by cash-rich, low-debt operators including SES of Luxembourg and Inmarsat of London.
Other analysts have questioned whether export credit does not distort the market by assuring the survivability of programs that otherwise would not get financed. These analysts point to Coface’s recent backing, through loan guarantees, of the Globalstar, Iridium and O3b constellations as examples.
“Let’s call this what it is,” ILS President Frank McKenna said Sept. 6. “Let’s not fear the ‘S’ word. These are subsidies.”
Other officials expressed similar sentiments, but stressed that what’s important is that, for better or for worse, ECA financing appears to have become a permanent fixture on the satellite finance landscape.
“A couple of years ago you didn’t hear much about ECA financing. Now it’s absolutely basic to everything we’re doing,” said Stephen T. O’Neill, president of Boeing Satellite Systems International of El Segundo, Calif., whose company has been more active in the commercial sector in the past two years. Boeing’s latest commercial satellite customer, Inmarsat of London, has said it will seek around $500 million in Export-Import Bank backing.
Regine Schapiro, head of Coface’s energy, telecom and space unit, said the agency’s loan guarantees “are not supposed to be less expensive” than conventional bank financing. In addition, she said, the Coface conditions follow a multinational agreement among developed nations that fixes limits on ECA project backing.
Schapiro said a Coface-backed project’s legal risk remains with the banks that, also under Coface rules, must support a portion of the risk not covered by Coface guarantees.
“They have a percentage of the risk and we require a security package” that forces satellite owners to secure insurance.
Olivier Royer, managing director for telecommunications at France’s Societe Generale bank, which has been involved in several Coface financings, said the bank does not take part in project finance “just because it is supported by the ECAs.”
Royer said he expects that, as conventional debt and equity markets recover, the ECA role will diminish as a percent of the total satellite deals, but not disappear.