ProtoStar In Dire Financial Straits As Launch of Second Satellite Nears

PARIS — Start-up satellite operator ProtoStar Ltd. is at risk of being declared in default on loans that financed the company’s ProtoStar-1 satellite, which after nearly a year in orbit is generating virtually no revenue. This comes as the company prepares for the May 16 launch of ProtoStar-2, which confronts broadcast frequency-coordination challenges similar to those faced by ProtoStar-1, industry officials said.

One official said Bermuda-headquartered, San Francisco-based ProtoStar had in fact defaulted on loan payments due in recent weeks, and that the company was struggling to persuade its creditors for more time to stave off a general default on the $200 million bond payment.

Talks are under way with other satellite operators and prospective investors on a whole or partial takeover of ProtoStar, a development that would give bondholders a guarantee of at least a partial return on their investment, officials said.

Two industry officials said the immediate risk for ProtoStar is that one bondholder’s declaration of a so-called “default event” will trigger similar moves by the other creditors, forcing ProtoStar to seek debt reorganization under Chapter 11 of the U.S. Bankruptcy Code.

Most companies entering Chapter 11 survive the process under the guidance of a bankruptcy court and return to operations, often with new owners, even if the original shareholders are wiped out.

If the other ProtoStar-1 bondholders can be persuaded to hold firm, ProtoStar may be able to find the resources needed to pay off the lone protesting bondholder, one industry official said.

Officials said ProtoStar-1 bondholders have no recourse to seize the ProtoStar-2 satellite asset, which was funded through a separate bond issue. ProtoStar-2 is scheduled for launch May 15 aboard an International Launch Services Proton-M rocket from
Russia
‘s BaikonurCosmodrome in
Kazakhstan
.

The satellite carries 27 Ku-band transponders and 13 S-band transponders for direct-to-home television broadcasts in
Indonesia
,
India
, the
Philippines
and
Taiwan
. Also known as Indostar-2, ProtoStar-2 carries an S-band payload that will replace the capacity aboard the aging IndoStar-1/Cakrawarta-1 spacecraft, which was launched for
Indonesia
in 1997 and pioneered the commercial use of S-band.

For ProtoStar-2, the coordination problem is with its Ku-band operating frequencies. Scheduled to operate at 107.7 degrees east longitude, the satellite will be just one-half of a degree away from the SES New Skies NSS-11 satellite. The International Telecommunication Union (ITU) of
Geneva
, the United Nations affiliate that regulates satellite orbital slots and frequencies, has determined that SES New Skies has priority in Ku-band transmissions, which would make it difficult for ProtoStar-2 to operate in those frequencies.

Industry officials agree that ProtoStar’s investors will be unable to rely on the S-band payload to meet their revenue objectives. They said ProtoStar could be forced into a strategic alliance with Luxembourg-based SES, or with some other large, well-financed satellite fleet operator that has clear frequency rights near enough to the ProtoStar-2 slot to permit the satellite to find its intended markets. Once ProtoStar-2 is launched, the satellite’s owners will have only a limited ability to change its onboard beams to cover the same area from a different orbital location.

ProtoStar
in recent months has sought to use a Vietnamese regulatory filing for Ku-band operations at the 107-degree slot, but ITU officials recently determined that
Vietnam
had failed to stake a claim to this slot before its reservation expired. The issue may be debated anew at the ITU’s Radio Regulations Board this summer.

“As it stands now, the Ku-band portion of ProtoStar-2 is not at all coordinated and this satellite is in a very delicate position,” said one government official familiar with ProtoStar-2. “But there are one or two large satellite operators interested in taking over the Ku-band payload, if it’s offered.”

The coordination debate will be familiar to those who helped finance ProtoStar-1. That satellite was launched in July 2008 into an orbital slot at 98.5 degrees east despite protests from China, the United Arab Emirates and others that its owners, and the Singapore administration whose orbital reservation was being used, had failed to coordinate its proposed broadcast frequencies.

Later that month,
Singapore
withdrew its regulatory backing for ProtoStar for reasons that
Singapore
‘s Infocomm Development Authority (IDA) has never fully explained.

ProtoStar
soon found a replacement administration in
Belarus
, which often acts as lead regulatory administration for the international Intersputnik organization of
Moscow
.

China
has since redirected its protests, many copied to the ITU, to
Belarus
, and
Belarus
officials have indicated that they, too, wish to be relieved of the ProtoStar issue. Intersputnik Deputy Director-General Stefan Kollar did not respond to an e-mail requesting comment on whether another Intersputnik member would be found to replace
Belarus
.

With no revenue being generated from ProtoStar-1 and the possibility that the satellite will need to change slots and administrative backing, ProtoStar-1’s creditors are seeking other options to monetize their investment. “Everything is on the table,” said an official involved in the process. “The satellite could be sold, or a strategic partner found,” this official said. “There are several other orbital slots being looked at.”

ProtoStar-1’s two anchor customers, meanwhile, have been forced to put the brakes on their business plans because of the satellite’s regulatory difficulties.

Essel
Group of
India
‘s Zee Network in 2007 agreed to pay $64 million over five years to use 14 ProtoStar-1 Ku-band transponders for television broadcasts into
India
. But none of the transponders has been loaded with programming. “ProtoStar is currently working actively to close the few remaining issues,” Zee Network Director PunitGoenka said in a May 6 e-mail response to Space News questions. “We are closely following the progress.”

PlanetSky
Ltd. of
Cyprus
, a satellite services provider, had been scheduled to lease five ProtoStar-1 C-band transponders as part of a major expansion of its business into
Africa
and
Asia
.

Angelos
Pieri, PlanetSky’s director, said May 5 that the company had invested in teleports to handle the ProtoStar-1 broadcasts and is now hoping to be part of a solution to operate ProtoStar-1 at another orbital slot – perhaps one of several slots for which
Cyprus
has reservations. “This has been very frustrating for us,” Pieri said. “Our interest is pursuing our business plan and it is not easy finding affordable C-band capacity where we operate.”

ProtoStar
Chief Executive Philip Father said May 7 the company would not comment on the issues surrounding ProtoStar-1 and ProtoStar-2.