PARIS —
Mobile Satellite Ventures L.P. has sufficient cash to pay satellite-builder Boeing and other contractors until mid-2008 but will need to secure an additional $125 million to
$150 million to continue to meet its obligations for the rest of that year, MSV officials said.
Reston, Va.-based MSV, the principal operating entity of SkyTerra Communications Inc., is considering a stock offering on the U.S. Nasdaq market and is weighing other moves,
including selling its 11 percent stake in former sister company
Terrestar Corp.
to raise cash in the coming months.
In an Aug. 14 conference call with financial analysts, MSV Chief Executive Alexander H. Good sought to persuade investors that a U.S. government auction of radio spectrum planned to start in January will enhance, not reduce, MSV’s value as a prospective partner in the construction of a nationwide wireless network that uses both satellites and terrestrial infrastructure.
Good said the auction of licenses in the 700-megahertz section of the spectrum will have the effect of adding value to MSV, which has a license to operate a hybrid satellite-terrestrial network in L-band in the United States and Canada but needs a deep-pocketed partner to pay for the ground-based signal transmitters.
As it rides out what Good conceded is market turbulence in the run-up to the 700-megahertz auction, MSV is facing higher capital-expenditure requirements from the suppliers of its two-satellite system.
MSV has contracted with Boeing Satellite Systems International of El Segundo, Calif., to build two large mobile communications satellites to provide voice and high-speed data links to hand-held devices for emergency response and general consumer use in North America.
The U.S. Federal Communications Commission (FCC) in August certified that the construction of the two satellites is continuing on schedule and refunded half of MSV’s $1.5 million bond deposit as a result.
The first of these two large satellites is scheduled for launch in 2009, the second in 2010. MSV Canada will own the second satellite and is on schedule with respect to Canadian regulatory deadlines,
Good
said in the conference call.
Scott Macleod, MSV’s c
hief f
inancial o
fficer,
said MSV had $333.7 million in cash as of June 30 and was consuming cash at a rate of about $80 million every three months. Macleod said
the company’s current cash position is sufficient to continue to pay Boeing and the company’s principal other suppliers until mid-2008.
MSV has signed a $43 million contract with Hughes Network Systems of Germantown, Md., for the satellite ground-based beam-forming technology to be used with the satellites. In May, MSV contracted with launch-service providers International Launch Services of McLean, Va., and Sea Launch Co. of Long Beach, Calif., to place the two Boeing-built satellites into orbit in 2009 and 2010.
The two launch-service contracts are valued at $89 million and $85.75 million, respectively, MSV has said in reports to its bondholders.
In addition to these commitments, MSV had contracted with Boeing for a third satellite, to offer similar services over South America. But in 2006 its U.S. regulatory approval for this satellite was revoked when the program fell behind schedule, forcing MSV to forfeit $2.3 million it had posted in an FCC performance bond.
MSV still has not notified Boeing that the third satellite has been cancel
ed. If it formally cancels this satellite’s construction before November, it will owe Boeing an additional sum that MSV has said would be at least $139 million, depending on when the stop-work order is issued.
Including these contract-termination costs, MSV’s payment obligations to Boeing, which totals $90 million this year, will rise to about $190 million in 2008 and $135 million in 2009, ending in 2010 with a final payment of $4.4 million.
Additional payments to Boeing of $96.7 million will be due over the 15-year life of the satellites, assuming both spacecraft operate according to specifications.
In the conference call, Macleod said MSV is considering the sale of its 11 percent stake in TerreStar Corp., a spinoff of MSV and SkyTerra that is planning a similar terrestrial-satellite network, but in S-band.
While they inhabit different portions of the radio spectrum, MSV and TerreStar are nonetheless competitors. MSV is in the increasingly uncomfortable position of having to share technology with TerreStar following a commitment made when the two projects were under the same corporate roof. Good said there is no way of ending this commitment and that MSV’s L-band position, plus its operating history, gives it an advantage over competitors like TerreStar.
MSV and MSV Canada currently operate two satellites providing mobile communications services. This business generated $16.2 million in revenue
for the first six months of 2007, down from $17.4 million a year earlier.
Good said MSV continues to talk with rival Inmarsat of London, which is the world’s biggest mobile satellite services operator and also uses L-band, about a possible partnership. Good declined to speculate on whether MSV ultimately could be purchased by Inmarsat.
