“Timing is crucial,” particularly when a satellite company makes its decision on when to explore options on collecting on debt related to leased capacity on satellites or on manufacturing, according to Frederick Sampliner, president of S.S. Sampliner & Co. Inc., a third party collection agency that specializes in, among other things, collecting debts for satellite companies.

“The continuing trend that I see is that there is an overabundance of companies competing in the same footprints with the space segment and because of that, they are forced to take on customers when they have empty slots that under normal conditions they would be more selective,” Sampliner told Satellite News. He compared the satellite industry to a radio station that is trying to fill in advertising in the early morning hours that will take on any potential client. “It is the same thing in space. You are better off having somebody [using available capacity] than nobody.”

But by doing that, companies run the risk of not being able to get the money that was agreed upon when contracts for capacity or even for a manufactured product are signed, particularly in countries outside of North America. “The problem is you get these companies up there that don’t have the real fiscal ability to consistently make payment and what happens on these long-term leases, you typically have breech of contract damages,” Sampliner said. “Then once [a company is] kicked off a satellite, termination damages that typically are huge are triggered. It takes away a company’s motivation to pay. If the company is faced with a choice of spending $5,000 to dissolve a company or to bankrupt it versus spending $5 million [in breech of contract and termination damages], it is not a tough decision on what [they may] do.”

Compounding the problem can be dealing with debtors in foreign countries, where Sampliner said more than half of the more than $8 million his firm collected last year came from. He said the $8 million has been a consistent amount of money his firm has helped to collect per year throughout the last few years and is a conservative estimate.

“In so many parts of the world, you don’t have a really user-friendly legal system to enter, assuming that you are suing the company or the government entity does not have sovereign immunity [which would prevent them from being sued in the first place],” Sampliner said. “Assuming you are allowed to sue, you are still stuck with the legal system and in many parts of the world, you do not have what we are used to in the United States and for that reason, you are not sure you will have a fair day in court, or if you get a judgment, how you are going to satisfy the judgment in the foreign country. It is a real headache and it is very expensive.”

Intelligent Choices

Given the state of the market, Sampliner offered some advice on dealing with the problem of collecting debt from the satellite industry’s more risky clients.

Before the contracts are signed, Sampliner suggested satellite companies get secured deposits. “When you get bank guarantees and letters of credit, you want to have it with a top-rated bank and not from a bank that you are not very comfortable with wondering whether they are going to honor it,” he said, noting that sometimes it is a task in itself to do the due diligence to get that comfort level. He also said that companies need to be more selective about the customers they take, but that might be as realistic as it sounds given the overcapacity situation that currently exists.

But once the case goes to collections, timing is the main part in determining when and in some cases if a debt will get collected.

“The best way for [satellite companies] to protect themselves is for them to be as proactive as possible, as early as is reasonable,” Sampliner said. “Very often, if a company has problems, the problems get worse, so the goal is to get in there before the situations deteriorates. You are better off being proactive and collecting a good portion of the debt versus risking losing everything if you wait too long. That is the biggest piece of advice I would give.” He suggested that the decision to proactively chase debt at six or eight months the debt is overdue versus a year and half out could be the difference between collecting a significant portion of the debt or not collecting any of it. “Timing is crucial,” he said.

The other point he emphasized is the value of making contact with the right individual who can make the decisions to get a debt paid.

“As much as [satellite companies] can afford to, they should use the telephones to communicate,” Sampliner said. “The impression you can make is magical if you get somebody on the phone versus just a letter or an e-mail. Don’t be afraid to use the phones.” He also suggested that companies hire bilingual executives to ensure that language is not used as an excuse to not communicate about debt.

–Gregory Twachtman

(Frederick Sampliner, S.S. Sampliner & Co. Inc., 212/239-4888)