What was shaping up to be a very interesting and likely ugly battle regarding the reorganization of the bankrupt Satelites Mexicanos S.A. de C.V. (Satmex) has ended with the ad hoc committees which represent certain U.S.-based debt holders agreeing to withdraw an involuntary Chapter 11 petition filed in the U.S. Bankruptcy Court for the Southern District of New York in favor of an alternate proceeding.
However, even if Satmex is able to come to an equitable reorganization plan that satisfies its creditors and is able to provide the necessary funding to get the Satmex 6 satellite launched, the future of the current organizational structure of the company remains in doubt.
Section 304 Petition
According to a release from the ad hoc committees, Satmex and the creditors reached an agreement in which the bankrupt satellite operator would file a petition under Section 304 of the U.S. Bankruptcy Code, at which point the ad hoc committees would withdraw their petition for involuntary Chapter 11 proceedings.
A Section 304 petition allows a foreign debtor to commence a proceeding that is ancillary to a foreign proceeding (in this case, Satmex has filed a concurso mercantil in Mexico, a proceeding similar to U.S. bankruptcy proceedings). The petition allows a U.S. Bankruptcy court to protect assets or property of a debtor that are in the United States by issuing an injunction preventing any action against that property.
The terms of the agreement allow for the ad hoc committees to seek dismissal of the Section 304 petition or termination of any injunction ordered by the court upon the occurrence of certain conditions, including any attempt to terminate or revoke Satmex’s concessions or the failure of Satmex to present a restructuring proposal to the creditors by Oct. 31. Creditors also have the right to seek relief in a U.S. bankruptcy court if Satmex 6 is not launched by June 30, 2006.
“The advantage of this solution is it sets out milestones that everyone agrees are reasonable, and if those milestones are not met or if there is some [unfair] behavior on the part of anyone in the process, we have a ready forum to go back in and argue the facts of the process in front of a [U.S.] judge,” Mitchell Harwood, managing director of Evercore Partners, which is providing financial advice to some of the bondholders, told Satellite News. “Of course a settlement means everyone gives on something, but the important thing is that geting this settled gets the satellite up the fastest, which is what everybody wants.”
Too Little Too Late?
Under the best case scenario, Satmex will work in good faith with its creditors and the Mexican government to get the reorganization details firmed up to enable the launch of Satmex 6, which is in storage at Arianespace‘s Kourou, French Guiana, launch facility (though plans are in motion to have the satellite returned to a Space Systems/Loral facility in Palo Alto, Calif., to prep it for launch).
A key part of the reorganization discussions will be the so-called “menoscabo,” a debt owed to the Mexican government by a subsidiary of a joint venture between Satmex’s two commercial shareholders — Loral Space & Communications and Principia S.A. de C.V. Mexican news outlets cited government sources as threatening to take action against Satmex, including removing its concession and other legal threats, if it did not consider the debt owed to the Mexican government along side or ahead of Satmex’s other creditors, even though the Mexican government is not a direct creditor of Satmex.
If the rhetoric in the Mexican press is an indication of what will come during the negotiations, the ugliness that would have come with the involuntary Chapter 11 proceeding could actually come to fruition. But even if the best-case scenario does come to pass and all sides agree to a reorganization plan that gets the creditors paid and Satmex 6 launched, the future of Satmex remains questionable at best.
One possible outcome if Satmex is successfully reorganized and Satmex 6 is launched is an infusion of private equity money to get the company back on its feet, which ultimately may make Satmex a prime acquisition target. There already has been some private equity interest in Satmex. Late last year, reports surfaced that an investment vehicle, The Constellation Group, was formed with the goal of taking over the financially troubled Satmex (SN, Dec. 20). The Constellation Group reportedly represented at least four other satellite operators, including Spain’s Hispasat, which was looking to boost capacity and reach more clients across the Western Hemisphere.
“The key to the restructuring is the launching of Satmex 6,” Maria Velez de Berliner, president of Latin Trade Solutions Inc., told Satellite News.
However, de Berliner noted that even if Satmex 6 is successfully launched, it will face significant competition. “Satmex-6 will [operate] among a crowded spectrum of Ku-and C- bands. Intelsat’s IA-8, with C-, Ku- and Ka-band transponders, allows for the flexibility of applications demanded by government, corporations, service providers and business. Star One will offer [service] at the beginning of 2006 to the same range of users. Therefore it seems difficult for Satmex, burdened as it is by debt, to compete effectively once Satmex 6 is up. It will not be surprising if its restructuring leads to acquisition, in whole or in part, by an investment fund that will flip it to a larger, more financially sound competitor.”
–Gregory Twachtman
(Mitchell Harwood, Evercore Partners, 212/857-3100; Maria Valez de Berliner, Latin Trade Solutions, 703/212-8586)
