NGA Anoints Orbimage As Remote-Sensing Survivor

The satellite industry may never have had such a quick turnaround story as what has transpired at Dulles, Va.-based Orbimage during the past six months. The company emerged from Chapter 11-bankruptcy court protection earlier this year and immediately began putting together a bid for the U.S. government’s $500 million NextView contract. Thornton, Colo.-based rival Space Imaging had been involved in private negotiations to win the contract before the talks were broken off to allow other potential suitors for the imagery pact to make their pitches.

The resulting win by Orbimage gives the company an incredible stroke of good fortune that will provide funding for it to launch a next-generation satellite. With little debt in its post-bankruptcy phase, Orbimage has the potential to go from the sector’s weakling to possibly becoming its strongest company.

Credit is due to the company’s entrepreneurial management team led by CEO Matthew O’Connell. A seasoned Wall Street attorney who works in the venture capital arena, O’Connell pared down the company’s expenses and shepherded it through the bankruptcy process. He then rallied his remaining employees to prepare what turned into the winning bid for the NextView contract. NextView, a program funded by the Bethesda, Md.-based National Geospatial-Intelligence Agency (NGA), will allow for the launch of a next-generation satellite by Orbimage to meet the imagery needs of the U.S. Defense Department and U.S. intelligence agencies.

O’Connell is putting his Wall Street connections to good use by arranging funding to supplement the cost of building and launching its planned next-generation OrbView-5 satellite, which would meet the NGA’s requirements for extremely high resolution imagery.

The cost of the OrbView-5 project, including financing and launch insurance, could hit an estimated $502 million. The satellite would be brought into service during the first quarter of 2007.

To fund its obligations under the NextView contract, Orbimage will issue $65 million in equity, $155 million of senior subordinated debt, and it will use $45 million in cash flow from existing operations. The NGA contract also will provide revenue commitments that would begin after OrbView-5’s in-service date.

Orbimage already has received commitments from investors to purchase 6.5 million units at $10 per unit. Each unit consists of one share of common stock and one warrant with an exercise price of $10 per share and a five-year maturity. The company will call $32.5 million of that commitment by privately issuing to the investors 3.25 million units by late October 2004, together with 1 million warrants on the same terms.

To raise the remaining $32.5 million in equity funding to cover the company’s share of the NextView project, Orbimage will conduct a rights offering to its shareholders starting in late 2004 or early 2005 to purchase an additional 3.25 million units.

What About Space Imaging?

A well-connected Wall Street lawyer is just what Orbimage needed to swoop in with the financing required to snag the NextView contract. However, the pact also was fundamental to Space Imaging’s long-term strategic plan and survival.

Space Imaging, the initial favorite to win both NextView pacts, is the unexpected two-time loser in the bidding process. Its fate now changes from long-term survivor to short- term operator, unless something completely unexpected happens.

Space Imaging’s slide began even before the NextView contract announcement earlier this month. Lockheed Martin [LMT] and Raytheon [RTN] originally funded Space Imaging but they opted not to bankroll the company any further. That lack of parental support left Space Imaging open to legitimate concerns it lacked the financial wherewithal to survive. It also likely limited Space Imaging’s ability to put forth the kinds of highly competitive bids it needed to make to ensure it secured a NextView contract.

The loss likely means Space Imaging will fulfill its remaining government contracts until the existing life of its IKONOS satellite is exhausted, but it could end up merging with Orbimage or DigitalGlobe, the Longmont, Colo.-based company that won the first NextView contract last year.

Orbimage’s ascendance leaves it positioned to become a long-term remote sensing survivor. It currently operates OrbView-3, a high-resolution satellite launched in June 2003, that offers one-meter panchromatic (black and white) and four-meter multispectral (color) digital imagery worldwide. It also has the less advanced and much older OrbView-2 ocean and land multispectral imaging satellite that was launched in 1997.

The due diligence performed by Orbimage management to prepare a NextView proposal for the NGA contract paid off. The challenge now will be for the company to take full advantage of the chance for new life that it was given at the expense of Space Imaging.