PARIS – A group of creditors is asking a U.S. court to force the indebted Mexican satellite operator Satmex into Chapter 11 bankruptcy, arguing that a months-long stalemate with the Mexican government is forcing the company into a downward spiral from which it may not recover.
The creditors are urging the court to start Chapter 11 proceedings in the United States immediately and to approve a reorganization plan under which they would invest $55 million in Satmex to permit it to pay for the launch of Satmex 6.
The satellite, already built by Satmex shareholder Loral Space and Communications of New York, has been in storage at Europe’s Guiana Space Center in French Guiana since October 2003, awaiting launch on an Ariane 5 rocket.
Satelites Mexicanos SA DE CV, which operates two telecommunications satellites, has not filed for bankruptcy in the United States or Mexico. As far as the company’s creditors, known as the Ad Hoc Committees, are concerned, Satmex is running out of time because its two aging satellites cannot provide sufficient growth to pull the company out of its tailspin.
Satmex customers already have started to abandon the company in favor of competing satellite operators. Meanwhile no progress has been made arranging the financing that is needed to pay for the Ariane 5 launch.
On May 26, the Ad Hoc Committees, which holds $379 million of Satmex’s $523.4 in outstanding debt, decided to act. In a submission to the U.S. Bankruptcy Court for the Southern District of New York, the creditors asked the court to step in, noting that the Satmex situation has been frozen because of Mexican government concerns that a Chapter 11 reorganization might have the effect of transferring Satmex ownership out of Mexico.
The Ad Hoc Committees asked the court May 27 to issue a summons to Satmex and to give the company 20 days to respond to the bankruptcy proposal.
Satmex “has allowed its business to deteriorate and has put its creditors at risk,” the Ad Hoc Committees say in their May 26 statement to the bankruptcy court. “[Satmex’s] operational and financial condition has been steadily deteriorating over the past several years… In effect, [Satmex] has been in a bankruptcy-like state for the past two years and has had more than enough time to solve its problems.”
The Ad Hoc Committees say they offered to provide the $55 million needed to complete the Satmex 6 launch payments in early 2004 and again later that year.But negotiations with Satmex’s other creditors went nowhere. The court filing says the situation has been made more difficult by the fact that Satmex Chief Executive Officer Lauro Gonzalez Moreno resigned in February and has not been replaced.
The Ad Hoc Committees also suggest in their court filing that the Mexican government wants its Satmex-related debts given priority as a condition of approving a Chapter 11-type restructuring.
The company that owns 70.7 percent of Satmex, Servicios Corporativos Satelitales, has defaulted on its Mexican government debt, which with interest now totals about $190 million. This default, which occurred in December, led the Mexican government to begin legal proceedings that will lead to its ownership of almost all of Satmex.
The Ad Hoc Committees argue that the Mexican government is blocking any progress on the Satmex situation until it receives guarantees relating to the Servicios debt repayment. In their court filing, they say Satmex’s debt should not be “held hostage” to the debts of its shareholders.
Satmex’s two operational satellites are not in good shape. Solidaridad 2, launched in 1994, is expected to be taken out of service in 2008. The Satmex 5 satellite, launched in 1998, is one of the Boeing 601HP models that has experienced problems with its xenon-ion propulsion system, leaving it with no more than three or four years of service before it fails in orbit, the court filing says.