Protostar in Chapter 11, Looking To Unload Satellites

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PARIS — Startup satellite operator ProtoStar Ltd., which filed for Chapter 11 bankruptcy protection July 29, hopes to use the reprieve from its creditors to auction its two orbiting direct-to-home television satellites, ProtoStar said in documents filed with the Delaware Bankruptcy Court.

Industry officials said two large satellite fleet operators, Eutelsat of Paris and SES of Luxembourg, have voiced interest in the ProtoStar 1 and ProtoStar 2 satellites, respectively. Both companies have declined comment on their possible interest.

In its court filings, San Francisco-based, Bermuda-headquartered ProtoStar lists assets of $528 million as of Dec. 31 — a point some five months after the launch of ProtoStar-1 and six months before ProtoStar 2 was in orbit and primed for service. Its liabilities at the time were $463 million, according to ProtoStar.

ProtoStar reported revenue of $3.1 million in 2008 but has already generated $2 million in revenue from ProtoStar 2, the company says.

Formed in 2005, ProtoStar found it easier to raise nearly $500 million in equity and debt than to navigate what proved to be complicated frequency-coordination issues that govern orbital slots and satellite-broadcast rights.

Its frequency-coordination issues prevented the company from generating revenue, which in turn caused it to default on one or more bond payments, setting in motion a cascade of defaults that forced the company into Chapter 11, ProtoStar says.

ProtoStar-1, launched in July 2008 and operated from 98.35 degrees east, quickly ran into fierce Chinese government resistance, in part because of China’s concern that ProtoStar 1 signals would interfere with the operation of one or more Chinese military satellites. Commercial satellite operators AsiaSat of Hong Kong and Thuraya of the United Arab Emirates also complained to international frequency regulators about ProtoStar’s alleged lack of coordination.

The Singapore government, which had been the administration responsible for ProtoStar 1, eventually abandoned the company, for still-unexplained reasons. The Singapore move left ProtoStar 1 without a regulatory home and prompted an unprecedented alarm sent out by the International Telecommunication Union (ITU), a Geneva-based United Nations affiliate, asking the world’s governments whether any of them had agreed to take responsibility for ProtoStar 1.

The multinational Intersputnik organization of Moscow, acting through one of its members, Belarus, subsequently said it had agreed to assume the role of registering administration for ProtoStar 1.

But according to the ProtoStar bankruptcy court documents, Intersputnik on April 3 informed ProtoStar that it was terminating its relation with ProtoStar. ProtoStar says it “disputes the validity” of Intersputnik’s termination but nonetheless has been obliged to shut down transponder operations of ProtoStar 1.

The company says it had been seeking alternative orbital slots for the satellite but that “a decision has been deferred due to ongoing negotiations of a possible sale process” for ProtoStar 1.

The obstacles in front of ProtoStar 1 do not end with the Intersputnik problem. The company says its anchor customer, Agrani Satellite Services of India, in April informed ProtoStar that it was terminating its capacity-lease agreement, which was signed in November 2007.

“The footprint of the [ProtoStar 1] satellite was customized to meet the immediate and long-term needs of Agrani,” ProtoStar says. According to ProtoStar, Agrani is claiming ProtoStar owes it $8.1 million. ProtoStar says it disputes the validity of the Agrani move.

In addition, ProtoStar’s erstwhile partner, the Philippine Long Distance Co. (PLDT), announced in May it was canceling its agreements under which ProtoStar would lease capacity on PLDT’s existing satellite and PLDT would reciprocate with a cash investment in ProtoStar.

ProtoStar 2, which carries a Ku- and S-band payload, was launched in June. Indostar of Indonesia is the intended customer for the S-band payload.

The satellite’s Ku-band capacity, which was counted on as the principal source of revenue, confronts frequency-coordination issues at its 107.7 degrees east slot that have not been resolved.

With its creditors now momentarily held at bay by the Chapter 11 filing, ProtoStar said it expects to begin the process of selling its satellites almost immediately.

ProtoStar’s biggest creditors are its current or former partners in the direct-to-home satellite venture, and its satellite and launch service suppliers.

According to the court documents, Philippine Long Distance Telephone Co. is the biggest creditor, with a claim of $27.5 million. Next is Agrani, which alleges ProtoStar owes it $8.1 million.

Other creditors are: International Launch Services of Reston, Va., which launched ProtoStar 2 ($5.7 million); Boeing Satellite Systems of El Segundo, Calif., which built ProtoStar 2 ($5.5 million); Indovision of Jakarta, Indonesia, which provides ground facilities and is a ProtoStar 2 customer ($5 million); launch services provider Arianespace of Evry, France, which launched ProtoStar 1 ($4 million): Space Systems/Loral of Palo Alto, Calif., which built ProtoStar 1 ($3.6 million); and Integral Systems of Columbia, Md., which provides satellite ground control systems ($2.5 million).