Satellite industry shifts away from export credit financing
PARIS — Export credit financing, which less than a decade ago was a critical element of satellite industry business plans, has now largely faded from the market as private financing becomes more accessible and affordable.
Export credit agencies, or ECAs, like the Export-Import Bank of the United States played a significant role in funding development of commercial satellites through the first half of the decade, particularly for systems that struggled to win financing without the guarantees that such agencies offered.
“The undertaking flat out could not have been accomplished without export credit finance,” said Tom Fitzpatrick, chief financial officer of Iridium, discussing the company’s $3 billion Iridium Next effort during a panel discussion at Euroconsult’s World Satellite Business Week conference here Sept. 9. The company’s financials at the time it started Iridium Next were not strong enough, he said, to support more conventional private funding.
Construction of the Iridium Next satellites by Thales Alenia Space was financed by the French export credit agency, then known as Coface and now called Bpifrance Assurance Export. Other satellite operators turned to export credit financing from Ex-Im in the United States and similar agencies in other countries.
Companies sought out export credit agencies since it was difficult for them to raise money elsewhere. “ECAs stepped in at a time when there was limited liquidity available in the market,” said Wim Steenbakkers, global head of satellite and technology finance at ING Bank.
“The availability of very low cost capital, particularly six to eight years ago when the regular capital markets were more expensive than they’ve been, certainly contributed to additional capacity” in the satellite industry, said Fred Turpin, global head of the media and communications investment banking practice at J.P. Morgan Chase.
In recent years, though, export credit financing has sharply declined. One factor is that the Ex-Im was sidelined from financing satellite or other large deals from 2015 until earlier this year, because of first a lapse of authorization of the bank and then a lack of a quorum on the bank’s board of directors. That quorum was restored in May when the Senate confirmed the nominations of three new board members.
However, other export credit agencies also retreated from the industry. Steenbakkers said that, in the last couple of years, such financing has “kind of vanished.”
He and others said that private capital sources are both more plentiful and desirable than export credit financing for satellite companies. “ECAs are not easy people to deal with,” Steenbakkers said. “It’s not like you can go to them and it’s going to be a walk in the park. It’s not the easiest source of funding to get.”
Turpin added that the systems that were funded by ECA helped contribute to a glut of capacity in satellite markets seen in the last few years. “It has lasting impacts on the sector in terms of consolidation that might have otherwise taken place or capacity that might have otherwise been delayed,” he said. “That, combined with some fairly rapid advances in technology, has created some challenges in the industry.”
Many satellite operators, including those planning constellations, are not rushing to seek export credit financing. Tom Whayne, chief financial officer of OneWeb, said the company was in “active discussions” about both a new round of equity financing as well as some debt financing. “The underpinning of our financing will be equity-based,” he said, from a combination of both existing and new investors.
Uncertainty about Ex-Im’s status could also deter additional financing through that agency, as the bank’s authorization expires at the end of September. A bipartisan group of senators introduced legislation July 25 to renew the bank’s authorization for 10 years, but the Senate, which is returning this week after its summer recess, has yet to take action on the bill.
With the deployment of Iridium Next now complete, Fitzpatrick said that Iridium will seek to refinance its existing export credit facility on better financial terms. “Now we see lots of alternatives for taking that out, and that can be easily accomplished,” he said. “Markets are very attractive right now.”