Satellite Industry Faces Next LEO Bankruptcy
Orbcomm Files For Voluntary Chapter 11 Bankruptcy Protection
In a move that should have come as no surprise to industry observers, Orbcomm Global L.P. [ORB] voluntarily filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Delaware last week (Sept. 15).
Anyone keeping an eye on the company could easily have predicted this would happen by looking at the recent developments at the low-Earth-orbit satellite operator. The company in recent months has laid off more than 200 employees and has missed its latest scheduled debt payment.
However, the company still is maintaining its operations for the moment as it looks to restructure and come out of bankruptcy protection.
“Filing for Chapter 11 is a necessary step in our plan to restructure Orbcomm, allowing us time to secure the financial resources needed to continue to serve effectively or global network of customers,” said Scott Webster, chairman and CEO of Orbcomm.
Orbcomm has retained the services of Donaldson, Lufkin & Jenrette Securities Corp. to advise the company on various recapitalization alternative in discussions with bondholders. Additionally, Orbital has retained the services of Bear, Stearns & Co. Inc. to explore financing alternatives for Orbcomm.
…Wall Street Has Mixed Reactions
“[Orbcomm’s] move to petition for voluntary Chapter 11 bankruptcy is the best step they can take to reorganize the company,” reported Banc of America Securities. “Simply put, Orbcomm needs investors to infuse the company with capital to cover its operating expenses until reaching cash flow break-even. We believe that the enormous debt burden, approximately $171 million as of the end of the second quarter, has likely turned away potential investors.”
“Given the high consensus voting requirements of its notes, it was likely difficult to restructure those notes outside of bankruptcy,” reported C.E. Unterberg, Towbin. “The company will now attempt to have those senior notes converted to equity as well as work on finding a new money partner.”
…What Does This Mean For The Future?
“This bankruptcy, in combination with the demise of Iridium and the resulting negative impact from Wall Street makes an already existing challenge an even greater one for the Little LEO market,” said Susan Irwin, president of satellite consultancy Irwin Communications.
The bankruptcy also raises questions as to the viability of satellites to serve the low data rate market.
Many industry insiders see a market for these types of applications, but there is a question as to whether satellite solutions are the best for low data rate messaging services.
“We continue to believe in the prospects of satellite messaging, but are cognizant of the fact that satellite messaging vertical markets do take longer than expected to penetrate,” reported Unterberg.
“The bankruptcy of Orbcomm will probably have a broad sweeping effect on the Little LEO business prospects,” said Roger Rusch, president of satellite consultancy TelAstra Inc. “The Little LEO service will probably disappear.”
“It is very unfortunate,” said Ahmad Ghais, president of the Mobile Satellite Users Association (MSUA). “Orbcomm is a good system. Leo One and Final Analysis have good products as well, but when the financial markets become sour, they become nondiscriminatory.”
But even if Orbcomm is able to pull itself out of Chapter 11 and become a profitable business, its growing pains will not go unnoticed.
“The other proposed systems are far behind Orbcomm and do not have any overwhelming advantages. It seems unlikely that others could succeed when Orbcomm has run into financial problems,” said Rusch.
Rusch also noted that competition from the terrestrial sector could hurt the Little LEO as well.
“There is certainly a low data rate service business,” said Rusch. “However, it is easy to forget about the alternatives. Qualcomm [QCOM] still has Omnitracs and Eutelsat has Euteltracs. There are 300,000 users for what appears to be a profitable business. There are also terrestrial wireless alternatives including Cellemetry. What the failure of Orbcomm probably means is that LEO systems are not economically viable.”
“It’s not like [Orbcomm] didn’t try,” said Stephane Chenard, executive vice president and chief analyst of communications and space at Euroconsult. “Ten years is a long time to build a project so maybe that market is for really big companies only to develop.”