PARIS — Startup satellite operator NewSat Ltd. of Australia on April 16 filed for bankruptcy protection from creditors, with its executive team stripped of control and bankruptcy managers immediately asking for a restraining order against NewSat’s creditors.
The bankruptcy filing, which was not unexpected given NewSat’s long agony, is the first formal satellite operator bankruptcy case in which the U.S. and French export-credit agencies have a substantial liability.
In an April 16 filing with the U.S. Bankruptcy Court of Delaware — a NewSat subsidiary is registered there — the company’s newly appointed administrators from PPB Advisory of Sydney, Australia, said satellite builder Lockheed Martin and launch service provider Arianespace must be blocked from terminating their contracts with NewSat.
The alternative, they said, would be the destruction of the company’s value and the reduced likelihood that creditors — led by the U.S. Export-Import Bank and the French export-credit agency, Coface — would be repaid.
The Delaware court approved the restraining order and set a hearing date of April 28 on extending it further.
Sunnyvale, California-based Lockheed Martin Space Systems is under a $266.6 million contract to built NewSat’s Jabiru-1 telecommunications satellite. Evry, France-based Arianespace is under a $115 million contract to launch the spacecraft.
NewSat has paid about $170 million to Lockheed Martin and the satellite’s construction is substantially complete, with the remaining contract milestones dealing with testing and delivery to the launch site.
The U.S. Export-Import Bank loaned NewSat $300.5 million, mainly to support the Lockheed Martin construction contract. Coface’s credit guarantees to a banking consortium made up of Societe Generale, Credit Suisse and Standard Chartered Bank amounted to most of the $115 million Arianespace-related loans.
At the insistence of the Ex-Im Bank and Coface, NewSat agreed to pledge most of its assets to Citicorp International Ltd. as a trustee, whose decision triggered the bankruptcy move.
While the Delaware Bankruptcy Court will be involved in the proceedings, the court agreed that Australia’s “administration proceedings” will take the lead.
Under the Australian procedure, two NewSat administrators were appointed, both from PPB Advisory of Sydney.
In documents filed with the Delaware court, NewSat’s administrators’ legal counsel said the Australian “administration proceedings” bears strong similarity to bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.
In both cases, the procedure is designed to protect the company’s assets so that a restructured company can survive. In the event that survival is not possible, the Australian procedure is designed to give creditors a better return than they would get if the company were liquidated right away.
The administrators are expected to convene a meeting of creditors after they assess the company’s situation. These meetings typically occur within four weeks after the start of the procedure.
In the meantime, the administrators have asked for the restraining orders to provide them with breathing room. “Relief is needed on an urgent basis to preserve the value of the Jabiru-1 project,” the administrators said in their filing to the Delaware court.
Lockheed Martin and Arianespace had previously notified NewSat that the company was in default on its payment obligations and that the contracts would be terminated if no payment was forthcoming.
The Ex-Im Bank and Coface for their part declined to release further funds to NewSat unless it came up with $40 million in fresh equity or debt by last Dec. 1. The two agencies also demanded the departure of NewSat’s chief financial offer and the appointment of three independent directors to the company’s board.
As of Dec. 1, NewSat had raised only $10 million in equity and new loans.
Arianespace had given NewSat until May 3 to make the outstanding payments. A similar deadline with Lockheed Martin was set for May 22, although the administrators said the satellite builder “may believe it is entitled to an earlier termination date.”
On April 14, Citicorp, as NewSat’s trustee, wrote Arianespace saying the launch provider had not addressed its termination notice to the trustee and had not sent it to the right list of people.
“The termination of any of these key contracts would have a cascading and devastating effect on the financial condition of the NewSat Group, to the detriment of all stakeholders,” the administrators said.
Questions likely to be raised by the Australian procedure are whether NewSat’s Jabiru-1 orbital slot rights are secure despite the fact that the satellite will be at least a year late in entering operations, and whether its Jabiru-1 customer contracts are firm despite the delay.