Author Topic: Singer’s NML Sues Musk’s SpaceX Over Argentina Contracts  (Read 28195 times)

Offline starsilk

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Not entirely clear what this is about - Argentina owns (has rights to?) two SpaceX launches, but is in default somehow and now a US firm is suing SpaceX to try and get the rights, because Argentina won't give them up? seems a bit.. odd.

http://www.businessweek.com/news/2014-03-25/singer-s-nml-sues-musk-s-spacex-over-argentina-contracts-1

Offline Danderman

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Argentina defaulted on its debt, and one of the debt holders is suing Argentina to take possession of their two launch contracts with SpaceX; presumably since these were secured a long time ago, the prices are very low, and presumably the plaintiff could assign the contracts to a real customer for real money.

SpaceX is being sued to force them to agree to the assignment.


Offline corrodedNut

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Argentina has defaulted on some gov't bonds they issued. Some of Argentina's U.S.-based creditors (the plaintiffs in this case, NML Capital) are trying to claim that the two launches are "property" bought in the U.S., and therefore can be seized.

What is NML going to do if they win? Re-sell the launch services? Who knows, but I imagine they will ask SpaceX for a refund.

Offline Overmind

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Seems like it.  if you dont pay Your dept...  But why sue SpaceX? 

Offline rpapo

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Offline Prober

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Not entirely clear what this is about - Argentina owns (has rights to?) two SpaceX launches, but is in default somehow and now a US firm is suing SpaceX to try and get the rights, because Argentina won't give them up? seems a bit.. odd.

http://www.businessweek.com/news/2014-03-25/singer-s-nml-sues-musk-s-spacex-over-argentina-contracts-1

"Argentina’s contract for SpaceX launch slots"   launch slots = deposits right?   Not the full launch costs.
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Offline Kabloona

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What is NML going to do if they win? Re-sell the launch services? Who knows, but I imagine they will ask SpaceX for a refund.

If Danderman is correct, the contracts will have a low face value and therefore not much "refund" value. As he says, the money play is to resell the slots at current market price. For two launches, that's what, $120 million or so? Not a bad windfall.

Offline Kabloona

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Not entirely clear what this is about - Argentina owns (has rights to?) two SpaceX launches, but is in default somehow and now a US firm is suing SpaceX to try and get the rights, because Argentina won't give them up? seems a bit.. odd.

http://www.businessweek.com/news/2014-03-25/singer-s-nml-sues-musk-s-spacex-over-argentina-contracts-1

"Argentina’s contract for SpaceX launch slots"   launch slots = deposits right?   Not the full launch costs.

The point is, the contract value with SpaceX will be low because they are old "teaser" prices. So they pay a low price for the 2 launches and "subcontract" them out at current market price, pocketing the spread.
« Last Edit: 03/26/2014 04:38 pm by Kabloona »

Offline DigitalMan

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Seems like it.  if you dont pay Your dept...  But why sue SpaceX?

Law school 101.  Sue everybody.  SpaceX could be assuming some risk if it did a reassignment without a court order.

Offline Kabloona

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According to the WSJ article (Google it to get past the paywall) it looks like it's going to turn into a battle between the US Supreme Court, backed by the US Government, and the Government of Argentina as to whether these contracts can be seized or not.

SpaceX is named in the suit because they are one party to the contract, but the legal tussle will be between the US courts/government and Argentina.
« Last Edit: 03/26/2014 04:49 pm by Kabloona »

Offline Jim

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The point is, the contract value with SpaceX will be low because they are old "teaser" prices. So they pay a low price for the 2 launches and "subcontract" them out at current market price, pocketing the spread.

Spacex can counter that they own the slots and will refund the money.  LSC's usually don't allow resale of their services.

Offline mheney

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I suspect the wording of the contract will play a part in this.  If there's a "no resale / no reassignment" clause, then all they can hope for is a refund of the "deposits" as provided for in the contract.



Offline Oli

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Ridiculous. NML tried something similar with that Argentine Navy Ship which was being held in a Ghanaian port.

If you buy government bonds, the default risk is part of the deal. That's why yields are a lot higher for countries with precarious finances.
« Last Edit: 03/26/2014 05:07 pm by Oli »

Offline Robotbeat

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Ridiculous. NML tried something similar with that Argentine Navy Ship which was being held in a Ghanaian port.

If you buy government bonds, the default risk is part of the deal. That's why yields are a lot higher for countries with precarious finances.
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Offline Kabloona

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The point is, the contract value with SpaceX will be low because they are old "teaser" prices. So they pay a low price for the 2 launches and "subcontract" them out at current market price, pocketing the spread.

Spacex can counter that they own the slots and will refund the money.  LSC's usually don't allow resale of their services.

I was thinking perhaps NML would continue to hold the contract and try to get paid "market price" by a third party payload to launch it for them under the NML contract.

 But after re-reading the article, I think you're right that they would simply try to collect a refund.
« Last Edit: 03/26/2014 05:35 pm by Kabloona »

Offline baldusi

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Is not only that Argentina defaulted. We also decided to repudiate the debt that didn't enter into a debt exchange program. The hold outs went to court, and the Argentina representatives stated that they would not follow the Court orders if it was against them (which was some of the most stupid statements I've ever heard). Thus, after repeated statements that they won't acknowledge the Court decisions only if it was against it, and given that the original bonds were issued under NY law, the Court basically told the hold outs to embargo whatever Argentina's Federal Government assets they can find that don't have diplomatic immunity (or are considered sovereign assets, or something like that). Thus, they found the SpaceX contract with CONAE for SAOCOM 1A/B. CONAE depends on the Federal Government, but is an autonomous entity. So the case is not very clear cut. It will be quite an interesting legal decision. And in the end is simply a tactic to actually get the government to enter into actual negotiations. Which they won't until this administration ends.
The flights are about 18 to 12months from launch for the first and 24 to 36 for the second. And were extremely early contracts. I believe they were previous to v1.0 flight. So they might have very low values and be mostly down payment for the second one. There must be a significant amount of integration work, since the payload passed CDR six months ago. But that is non-refundable. In fact, I don't think anything will be refundable at this point. And trying to sell the launch to a third party will be difficult because of the integration issues. To put things into perspective, the total amount of debt only to this fund is around 1.7B.
My personal take, besides the fact that my government did the worst possible negotiation with this guys, is that this is more a harassment/embarrassment tactic than an actual look for money.

Offline ChrisWilson68

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Is not only that Argentina defaulted. We also decided to repudiate the debt that didn't enter into a debt exchange program. The hold outs went to court, and the Argentina representatives stated that they would not follow the Court orders if it was against them (which was some of the most stupid statements I've ever heard). Thus, after repeated statements that they won't acknowledge the Court decisions only if it was against it, and given that the original bonds were issued under NY law, the Court basically told the hold outs to embargo whatever Argentina's Federal Government assets they can find that don't have diplomatic immunity (or are considered sovereign assets, or something like that). Thus, they found the SpaceX contract with CONAE for SAOCOM 1A/B. CONAE depends on the Federal Government, but is an autonomous entity. So the case is not very clear cut. It will be quite an interesting legal decision. And in the end is simply a tactic to actually get the government to enter into actual negotiations. Which they won't until this administration ends.
The flights are about 18 to 12months from launch for the first and 24 to 36 for the second. And were extremely early contracts. I believe they were previous to v1.0 flight. So they might have very low values and be mostly down payment for the second one. There must be a significant amount of integration work, since the payload passed CDR six months ago. But that is non-refundable. In fact, I don't think anything will be refundable at this point. And trying to sell the launch to a third party will be difficult because of the integration issues. To put things into perspective, the total amount of debt only to this fund is around 1.7B.
My personal take, besides the fact that my government did the worst possible negotiation with this guys, is that this is more a harassment/embarrassment tactic than an actual look for money.

Great post!  You're absolutely right that it's a complex case and not at all clear cut.

If Argentina chose to issue bonds under the laws of the State of New York, that was their choice, and it's not entirely unreasonable for U.S. courts to claim jurisdiction.  Why did Argentina issue the bonds under New York law?  Presumably they did it because they got better terms for the bonds that way because investors assumed the bonds were more secure when they had recourse to U.S. law to enforce them.

And I agree with you that this is likely more of a harassment and embarrassment tactic to put pressure on Argentina to negotiate rather than something that is likely to directly lead to much monetary gain by the creditors.

Offline ChrisWilson68

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I think SpaceX should tell them to stuff it. Did we hold Germany hostage to its unpaid debts after WW2?
Uhmm, the US occupied Germany until 1994 and is still keeping bases there. So while not quite holding them hostage, I would not exactly use Germany as an example.
The US also paid to rebuild Germany. The world learned after WW2 that forcing a country to go into depression to pay debts is counter-productive and can lead to Very Bad Things (TM). But this is more relevant for Greece. Off-topic anyway.

Thanks for your perspective, baldusi.

Yes, but there's a difference between a government deciding to accept losses itself to help another country that is in trouble versus a government forcing private investors to take losses.

The more investors are forced to take losses on government bonds, the more of a risk premium investors will demand for future bonds.  Really, if you force investors to take losses, the cost ultimately is to future governments that have to pay more to borrow.  And that's doing exactly what you're trying to avoid, which is making it hard for countries in trouble to recover.

There's also a question of credibility of New York state law.  If these bonds were issued under N.Y. law and then the courts refuse to enforce that law, it makes investors less likely to trust contracts in N.Y.  Say next year a private firm in India tries to raise money by issuing bonds under N.Y. law.  If the courts won't enforce the Argentinian bonds, investors might reasonably worry about whether in the future the courts will also refuse to enforce the contracts with the firm in India.  So the Indian firm might not be able to raise the money it might if everyone had faith in N.Y. contract law.

Offline mcoconnor

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Interesting.  So if NML was successful in its suit and compelled SpaceX to refund any deposits received for these launches (I can't imagine the contract is freely transferrable), that would really be a win for SpaceX. 

They would nullify a low-price early adopter launch agreement and fill the hole in their manifest with higher-paying launch (and not have to suffer the consequences, since they were compelled to do so by the courts).  One thing they're not short on now is customers waiting for rockets.

Offline Lar

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OK ... what year Germany bombed Pearl Harbor[1]  is probably just a WEE bit off topic... trimmed. Ditto some of the more convoluted international finance ramifications and suchlike, and a whole host of stuff inbetween. Try to stick to the direct impact on SpaceX that is known at this time. Thanks.

1  - It's an Animal House reference.
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