Path Smoothed for Kistler To Leave Bankruptcy

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Kistler Aerospace Corp. is expected to emerge from Chapter 11 bankruptcy by mid-April with enough cash from its new owner to resume development of its reusable K-1 rocket for at least several months before it needs a large cash infusion, according to Kistler officials.

The Kirkland, Wash.-based company’s exit from bankruptcy was all but assured March 29 when a Seattle bankruptcy court — and Kistler’s principal creditors — approved the company’s proposed reorganization.

Kistler’s Seattle attorney, Ragan L. Powers of Davis Wright Tremaine LLP, said April 1 that the March 29 court decision followed a virtually unanimous consensus among Kistler creditors that they would be best served if Kistler were allowed to resume operations. Kistler’s debt totals about $600 million.

Chief among Kistler’s creditors is Bay Harbour Management LLC of New York, which has agreed to provide bankruptcy-exit financing of $15 million to get Kistler out of bankruptcy court and back into the business of building its K-1 reusable rocket.

To complete the rocket’s construction and conduct a first launch from the company’s Woomera, Australia, spaceport, Kistler needs another $500 million, according to company estimates.

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 beyond the initial $15 million.

Powers said the Bay Harbour funding is sufficient for Kistler to restart operations and continue operating into 2006. Powers said that several prospective strategic and financial investors had expressed interest in the company — but only after it has emerged from bankruptcy. Kistler entered Chapter 11 bankruptcy in July 2003.

In addition to Bay Harbour, Kistler’s debtors include the manufacturers of K-1 rocket segments, including Aerojet Corp., Northr op Grumman, Honeywell and Lockheed Martin. These companies now will become equity shareholders in Kistler.

If Bay Harbour and Kistler’s management are successful in raising the cash needed to complete the K-1 rocket and prove its design, the company says it will be well-positioned to receive NASA space station re-supply contracts and other business.

Kistler says the K-1’s design is 85 percent complete, and its construction is 75 percent complete. If the financing is secured, a first launch could occur in 2007, according to Kistler officials.

Powers said the Australian launch-site licenses remain in force, and that Kistler ultimately plans a U.S. launch site as well.