Eutelsat OneWeb: Constellation - General Thread

[Redclaws]

Chris,

Thanks a ton - that was a really nice and thorough explanation.  Very nice.

[GWR64]

Exclusive in today’s @telebusiness: OneWeb, the UK satellite start-up, has appealed to the Government for a rescue loan and offered to move the bulk of its ops from Florida to Britain'

https://twitter.com/matthfield/status/1249277198533525504

Difficult to convey, Covid-19 crisis and additional Brexit.
Jobs are not at stake in the UK.
If Airbus had built the satellite factory at SSTL, it would maybe look different.

[GWR64]

Thanks, but is that enough justification to put tax money in there in the current situation. Which may then be lost.
I think the British government is currently facing major problems to solve. But who knows.

[RocketGoBoom]

By providing the DIP bankruptcy financing, SoftBank Group is the super senior secured creditor now. The bankruptcy process could take a year or so. Within the next 12-18 months, if SoftBank Group's financial situation stabilizes and improves, they would then be in the position to convert this BK financing into equity and claim 100% ownership of OneWeb, then finish the constellation.

This process would take away the minority ownership from the pre-BK owners.

Here is a list of the known investors in OneWeb prior to bankruptcy:

https://www.crunchbase.com/organization/oneweb/investors/investors_list#section-investors

SoftBank Group, Qualcomm, EchoStar HughesNet, Intelsat, Virgin Group, Groupo Salinas, Government of Rwanda plus a few more.

[mgeagon]

Chris, that was an absolutely exceptional treatise on bankruptcy in general and One Web's situation in particular.

So, Softbank has a $2.5B equity stake in One Web and tells the company's current management that any additional equity financing is being shut off. This forces a Chapter 11 filing, effectively nullifying all party's investments, as it becomes clear that creditors cannot be paid in full under current cash flow conditions. Softbank then becomes an angel DiP, bringing $200M and very high interest rates to the table. The Japanese company jumps the line and goes from the biggest potential loser to the first winner in any outcome.

In one case, One Web is able to find a way through perhaps governmental sources to complete its constellation and begin revenue service. The company then pays back Softbank at a very high interest rate first, then pays back its creditors (whom have been spitting mad in the interim), and finally the majority stock holder can take back control of the operations (Softbank).

In another scenario, after a period of due diligence, Softbank decides as DiP that liquidation is the best option and pursues a Chapter 7 filing, compelling the liquidation of all assets. They are already intimately familiar with One Web's balance sheet and must know that they will recoup the $200M plus interest or they simply wouldn't have made the offer. Anything left over would be split amongst the other, very angry and only fractionally made whole creditors. All equity stakeholders will be left with nothing.

Without Softbank becoming the DiP, it would most likely lose everything. Being the DiP, it should be able to recoup at least a fraction of its investment. I imagine the current large creditors might have a counter argument for the bankruptcy judge soon.

[matthewkantar]

Oneweb's prospects are not improving while the factory is dark, zero sats are flying and the competition is moving apace. If they were going to throw more money at it, they should have done it a month ago.

[ChrisWilson68]

It's true that it's possible that this is a move by Softbank to take over OneWeb and then resume building and launching satellites.

If so, however, it's highly risky on Softbank's part.  Softbank would have to be betting that OneWeb has value and that nobody else with deep pockets can see that value.  If some hedge fund or other party sees value in OneWeb, they could bid for the business against Softbank.  Softbank will only end up in control of OneWeb after bankruptcy if Softbank pays more than any other bidder.

Also, the process of going through Chapter 11 is harmful to the OneWeb business.  They laid off a lot of people and it will take time and resources to staff up again if they do go back to launching their constellation.  That's in addition to the delays in manufacturing and launch of satellites during the bankruptcy.  And it harms OneWeb's reputation -- others are likely to be more hesitant to make deals of various sorts with a company that has gone bankrupt.

Finally, if Softbank really did purposely force OneWeb into bankruptcy by cutting off funding even though they believed the company would be successful just to get a bigger share of OneWeb, if people figure out that Softbank did that, it will be very harmful to Softbank's reputation.  Softbank invests in lots of companies.  Others will not want to make deals to let them invest if it becomes known that Softbank does something so harmful to other investors, employees, and everyone else involved just to try to get more for itself.

For these reasons, I doubt that it's true that Softbank is making a play to gain control of OneWeb.  Softbank is under a lot of pressure to conserve cash right now.  They've had high-profile losses recently and everyone knows there is huge uncertainty about the economy in general right now.  Those reasons are more than enough to explain Softbank cutting off funding to OneWeb.

[RedLineTrain]

Peter B. de Selding is reporting that Softbank is offering a pro-rata share of DIP financing to those who are holding OneWeb secured debt.  So it doesn't look like Softbank wants to take over complete ownership of OneWeb.

In any event, anybody who brings this constellation to the finish line with $5 billion or whatever will dilute any of the current owners to insignificance.

https://twitter.com/pbdes/status/1249678361443676160

[Robotbeat]

I seriously hope they're rescued somehow anyway.

[Rondaz]

SoftBank expects $24 billion in losses from Vision Fund, WeWork, and OneWeb investments https://tcrn.ch/2xgV1G4 by @jshieber and @alex

https://twitter.com/TechCrunch/status/1249725677571584000

[mn]

Chris, that was an absolutely exceptional treatise on bankruptcy in general and One Web's situation in particular.

So, Softbank has a $2.5B equity stake in One Web and tells the company's current management that any additional equity financing is being shut off. This forces a Chapter 11 filing, effectively nullifying all party's investments, as it becomes clear that creditors cannot be paid in full under current cash flow conditions. Softbank then becomes an angel DiP, bringing $200M and very high interest rates to the table. The Japanese company jumps the line and goes from the biggest potential loser to the first winner in any outcome.

In one case, One Web is able to find a way through perhaps governmental sources to complete its constellation and begin revenue service. The company then pays back Softbank at a very high interest rate first, then pays back its creditors (whom have been spitting mad in the interim), and finally the majority stock holder can take back control of the operations (Softbank).

In another scenario, after a period of due diligence, Softbank decides as DiP that liquidation is the best option and pursues a Chapter 7 filing, compelling the liquidation of all assets. They are already intimately familiar with One Web's balance sheet and must know that they will recoup the $200M plus interest or they simply wouldn't have made the offer. Anything left over would be split amongst the other, very angry and only fractionally made whole creditors. All equity stakeholders will be left with nothing.

Without Softbank becoming the DiP, it would most likely lose everything. Being the DiP, it should be able to recoup at least a fraction of its investment. I imagine the current large creditors might have a counter argument for the bankruptcy judge soon.

I don't think this is correct, SoftBank is not skipping any lines. They are first for the new loan only. The only way they get any of their original investment back is if they actually revive the business to the point that all others ahead of them get their money, which they certainly would not object to.

[gongora]

So what exactly does this part mean?

The lenders
under the DIP Facility (the “DIP Lenders”) will fund up to $75 million in new money term loans
(the “DIP New Money Loans”) in four tranches based on the Debtors achieving certain milestones
in the proposed marketing and sale process for the Assets. In addition, for every new dollar that a
DIP Lender funds under the DIP Facility, such lender will roll up three dollars owing on its (or its
affiliates’) Notes into additional term loans under the DIP Facility (collectively, the “DIP Roll-Up
Loans” and, together with the DIP New Money Loans, the “DIP Loans”)

[mn]

So what exactly does this part mean?

The lenders
under the DIP Facility (the “DIP Lenders”) will fund up to $75 million in new money term loans
(the “DIP New Money Loans”) in four tranches based on the Debtors achieving certain milestones
in the proposed marketing and sale process for the Assets. In addition, for every new dollar that a
DIP Lender funds under the DIP Facility, such lender will roll up three dollars owing on its (or its
affiliates’) Notes into additional term loans under the DIP Facility (collectively, the “DIP Roll-Up
Loans” and, together with the DIP New Money Loans, the “DIP Loans”)

Good question, and I have no idea. Hopefully someone who knows can explain.

[ChrisWilson68]

So what exactly does this part mean?

The lenders
under the DIP Facility (the “DIP Lenders”) will fund up to $75 million in new money term loans
(the “DIP New Money Loans”) in four tranches based on the Debtors achieving certain milestones
in the proposed marketing and sale process for the Assets. In addition, for every new dollar that a
DIP Lender funds under the DIP Facility, such lender will roll up three dollars owing on its (or its
affiliates’) Notes into additional term loans under the DIP Facility (collectively, the “DIP Roll-Up
Loans” and, together with the DIP New Money Loans, the “DIP Loans”)

Good question, and I have no idea. Hopefully someone who knows can explain.

It means that OneWeb is really desperate for cash.  They're offering really good terms to anyone willing to offer them loans while in Chapter 11.  Here are the terms OneWeb is offering to anyone who will give them such a loan (DIP financing):

  1. Once they sell off their assets, either as the whole business or in pieces, they'll use the money first to pay off the DIP loans in full.  Only once they're paid off is any remaining money distributed among other parties they owe money to.

  2. They will also pay 12% monthly interest on the DIP loans.  This interest will also be paid before anyone else who is owed money is paid.

  3. Not only that, but for every dollar of DIP loans an existing creditor makes, three more dollars of old loans that were made by that creditor pre-bankruptcy will be treated as DIP loans and paid off before anyone else is paid.

So, Softbank provides $75 million in new cash.  In exchange, they get 12% monthly interest on that new cash and $225 million in old loans that Softbank made before ($75 times 3) will also be paid off before any of the other loans made to OneWeb pre-bankruptcy.

So, if OneWeb can sell off either its whole business or its individual assets for more than $75 million, this is a great deal for Softbank.  Say they sell off their assets for $200 million.  The whole $200 million goes to Softbank and nobody else gets anything.

If OneWeb sells off its assets for a total of $500 million and ends up spending $50 million along the way, there's $450 million left.  $300 million of that goes directly to Softbank off the top -- $75 million plus $225 million, plus interest.  The remaining $150 million minus interest is split among all the other parties OneWeb owes money to, including Softbank to the extent it loaned OneWeb additional money more than $225 million pre-bankruptcy.

Does this mean Softbank ends up in control of OneWeb post-bankruptcy?  No, OneWeb goes to the highest bidder and Softbank gets the proceeds.  But it does mean that if there's no bidder for more than $300 million, Softbank can just refuse the bids and hold on to OneWeb itself, if it wants to.

It's worth noting that to be fair to the other parties OneWeb owes money to, they're all also being offered the same terms.  That's so that they can't complain Softbank is getting preferential treatment.  So another party that OneWeb owes money to could provide them additional cash in DIP financing and also have 3 times that amount of old loans become DIP loans that are paid off first.

Why is OneWeb offering such advantageous terms?  Because they have to.  If they could get DIP financing on better terms, they would be legal required to do so.  They have to convince the bankruptcy judge that these are the best terms they can get for the DIP financing they need right now.  If they could get the financing without the additional perk of converting 3 dollars of pre-brankruptcy loans to DIP loans, they'd be legally required to do so.  That's because the conversion perks are bad for the other creditors, so they can only do it if that's the only way they can get the DIP financing they need to try to get anything for their creditors.

So these terms really reflect the high risk any potential lenders are seeing that OneWeb won't be able to get even $75 million back from selling its assets.

[mn]

So what exactly does this part mean?

The lenders
under the DIP Facility (the “DIP Lenders”) will fund up to $75 million in new money term loans
(the “DIP New Money Loans”) in four tranches based on the Debtors achieving certain milestones
in the proposed marketing and sale process for the Assets. In addition, for every new dollar that a
DIP Lender funds under the DIP Facility, such lender will roll up three dollars owing on its (or its
affiliates’) Notes into additional term loans under the DIP Facility (collectively, the “DIP Roll-Up
Loans” and, together with the DIP New Money Loans, the “DIP Loans”)

Good question, and I have no idea. Hopefully someone who knows can explain.

It means that OneWeb is really desperate for cash.  They're offering really good terms to anyone willing to offer them loans while in Chapter 11.  Here are the terms OneWeb is offering to anyone who will give them such a loan (DIP financing):

  1. Once they sell off their assets, either as the whole business or in pieces, they'll use the money first to pay off the DIP loans in full.  Only once they're paid off is any remaining money distributed among other parties they owe money to.

  2. They will also pay 12% monthly interest on the DIP loans.  This interest will also be paid before anyone else who is owed money is paid.

  3. Not only that, but for every dollar of DIP loans an existing creditor makes, three more dollars of old loans that were made by that creditor pre-bankruptcy will be treated as DIP loans and paid off before anyone else is paid.

So, Softbank provides $75 million in new cash.  In exchange, they get 12% monthly interest on that new cash and $225 million in old loans that Softbank made before ($75 times 3) will also be paid off before any of the other loans made to OneWeb pre-bankruptcy.

So, if OneWeb can sell off either its whole business or its individual assets for more than $75 million, this is a great deal for Softbank.  Say they sell off their assets for $200 million.  The whole $200 million goes to Softbank and nobody else gets anything.

If OneWeb sells off its assets for a total of $500 million and ends up spending $50 million along the way, there's $450 million left.  $300 million of that goes directly to Softbank off the top -- $75 million plus $225 million, plus interest.  The remaining $150 million minus interest is split among all the other parties OneWeb owes money to, including Softbank to the extent it loaned OneWeb additional money more than $225 million pre-bankruptcy.

Does this mean Softbank ends up in control of OneWeb post-bankruptcy?  No, OneWeb goes to the highest bidder and Softbank gets the proceeds.  But it does mean that if there's no bidder for more than $300 million, Softbank can just refuse the bids and hold on to OneWeb itself, if it wants to.

It's worth noting that to be fair to the other parties OneWeb owes money to, they're all also being offered the same terms.  That's so that they can't complain Softbank is getting preferential treatment.  So another party that OneWeb owes money to could provide them additional cash in DIP financing and also have 3 times that amount of old loans become DIP loans that are paid off first.

Why is OneWeb offering such advantageous terms?  Because they have to.  If they could get DIP financing on better terms, they would be legal required to do so.  They have to convince the bankruptcy judge that these are the best terms they can get for the DIP financing they need right now.  If they could get the financing without the additional perk of converting 3 dollars of pre-brankruptcy loans to DIP loans, they'd be legally required to do so.  That's because the conversion perks are bad for the other creditors, so they can only do it if that's the only way they can get the DIP financing they need to try to get anything for their creditors.

So these terms really reflect the high risk any potential lenders are seeing that OneWeb won't be able to get even $75 million back from selling its assets.

Thanks for the excellent explanation.

So one question: this generous offer from OneWeb doesn't seem to cost OneWeb anything, they could offer 5x, 10x, makes no difference, only who gets paid first?

[meekGee]

So what exactly does this part mean?

The lenders
under the DIP Facility (the “DIP Lenders”) will fund up to $75 million in new money term loans
(the “DIP New Money Loans”) in four tranches based on the Debtors achieving certain milestones
in the proposed marketing and sale process for the Assets. In addition, for every new dollar that a
DIP Lender funds under the DIP Facility, such lender will roll up three dollars owing on its (or its
affiliates’) Notes into additional term loans under the DIP Facility (collectively, the “DIP Roll-Up
Loans” and, together with the DIP New Money Loans, the “DIP Loans”)

Good question, and I have no idea. Hopefully someone who knows can explain.

It means that OneWeb is really desperate for cash.  They're offering really good terms to anyone willing to offer them loans while in Chapter 11.  Here are the terms OneWeb is offering to anyone who will give them such a loan (DIP financing):

  1. Once they sell off their assets, either as the whole business or in pieces, they'll use the money first to pay off the DIP loans in full.  Only once they're paid off is any remaining money distributed among other parties they owe money to.

  2. They will also pay 12% monthly interest on the DIP loans.  This interest will also be paid before anyone else who is owed money is paid.

  3. Not only that, but for every dollar of DIP loans an existing creditor makes, three more dollars of old loans that were made by that creditor pre-bankruptcy will be treated as DIP loans and paid off before anyone else is paid.

So, Softbank provides $75 million in new cash.  In exchange, they get 12% monthly interest on that new cash and $225 million in old loans that Softbank made before ($75 times 3) will also be paid off before any of the other loans made to OneWeb pre-bankruptcy.

So, if OneWeb can sell off either its whole business or its individual assets for more than $75 million, this is a great deal for Softbank.  Say they sell off their assets for $200 million.  The whole $200 million goes to Softbank and nobody else gets anything.

If OneWeb sells off its assets for a total of $500 million and ends up spending $50 million along the way, there's $450 million left.  $300 million of that goes directly to Softbank off the top -- $75 million plus $225 million, plus interest.  The remaining $150 million minus interest is split among all the other parties OneWeb owes money to, including Softbank to the extent it loaned OneWeb additional money more than $225 million pre-bankruptcy.

Does this mean Softbank ends up in control of OneWeb post-bankruptcy?  No, OneWeb goes to the highest bidder and Softbank gets the proceeds.  But it does mean that if there's no bidder for more than $300 million, Softbank can just refuse the bids and hold on to OneWeb itself, if it wants to.

It's worth noting that to be fair to the other parties OneWeb owes money to, they're all also being offered the same terms.  That's so that they can't complain Softbank is getting preferential treatment.  So another party that OneWeb owes money to could provide them additional cash in DIP financing and also have 3 times that amount of old loans become DIP loans that are paid off first.

Why is OneWeb offering such advantageous terms?  Because they have to.  If they could get DIP financing on better terms, they would be legal required to do so.  They have to convince the bankruptcy judge that these are the best terms they can get for the DIP financing they need right now.  If they could get the financing without the additional perk of converting 3 dollars of pre-brankruptcy loans to DIP loans, they'd be legally required to do so.  That's because the conversion perks are bad for the other creditors, so they can only do it if that's the only way they can get the DIP financing they need to try to get anything for their creditors.

So these terms really reflect the high risk any potential lenders are seeing that OneWeb won't be able to get even $75 million back from selling its assets.

Wouldn't existing lenders object?  They were not investors, they should be first in line compared to new lenders, no?  The fact that they're being offered the same deal shouldn't matter IMO.

[ncb1397]

Wouldn't existing lenders object?  They were not investors, they should be first in line compared to new lenders, no?  The fact that they're being offered the same deal shouldn't matter IMO.

What bankruptcy court says goes. Chapter 11 bankruptcy is not exactly good for lenders, but they knew about the laws before they opened their checkbook and gave OneWeb money. Same thing happens to credit card companies when individuals go bankrupt. Despite this, banks tend to make money regardless. The risk of loans not being paid back is simply factored into their interest rates. The system is supposed to be a compromise between protecting lenders and protecting employment for people that work at distressed companies for instance.

[meekGee]

Wouldn't existing lenders object?  They were not investors, they should be first in line compared to new lenders, no?  The fact that they're being offered the same deal shouldn't matter IMO.

What bankruptcy court says goes. Chapter 11 bankruptcy is not exactly good for lenders, but they knew about the laws before they opened their checkbook and gave OneWeb money. Same thing happens to credit card companies when individuals go bankrupt. Despite this, banks tend to make money regardless. The risk of loans not being paid back is simply factored into their interest rates.

Yeah, it's not like there weren't warning signs all over this one.

But, there's a clear distinction between lenders and investors.  Your description fits better to investors - high risk, high reward.

Lenders do take a risk of course (as you point out) but this particular arrangement puts investors ahead of lenders.

Court passed it, but it still smells funny.

[ChrisWilson68]

Wouldn't existing lenders object?  They were not investors, they should be first in line compared to new lenders, no?  The fact that they're being offered the same deal shouldn't matter IMO.

The idea is that this DIP deal is better for the other existing lenders than the alternative because the DIP financing lets OneWeb get more money for its assets than they would get if the financing weren't there.

The DIP financing will go to maintaining the assets and talking up the value of those assets to potential bidders.

Imagine they don't get any financing.  They can't pay the small number of employees they kept on to maintain their assets.  They can't pay rent at their facilities.  Landlord foreclose.  They lose the ability to control their constellation.  They can't get anyone to buy their spectrum rights because there's nobody left on staff to answer questions about those spectrum rights and file whatever paperwork is needed to maintain them.

If any existing lenders object to the DIP arrangement, they have a chance to file their objections in court before the DIP deal is final.  Then a judge can rule on whether the proposed DIP deal with Softbank is good or bad for the creditors as a whole.

Everything OneWeb does in bankruptcy has to be for the benefit of the pre-bankruptcy creditors first and foremost, and secondarily for the original stockholders to the extent that there's anything left after paying off the creditors.  The court is there to make sure it is in the interests of those creditors.  All the creditors have a chance to hear about any proposed actions and file objections if they don't agree with them.  The judge is there as a neutral third party to decide what's in the best interests of creditors.

[ChrisWilson68]

Lets say you loaned money to OneWeb and you think the DIP deal with Softbank is not the way to maximize value for creditors.

Lets say you think OneWeb has enough cash on hand to do the minimum to sell off assets and putting more cash in won't help creditors at all.  Then you file a motion with the court saying that and argue why you believe that.

Or, lets say you think OneWeb only needs $30 million, not $75 million.  You think $30 million is sufficient to maintain the assets to maximize value and the extra $45 million Softbank is providing doesn't help but costs creditors a lot.  Then you file a motion with the court saying that and argue why you believe that.

Or, lets say you agree that OneWeb needs $75 million in cash to maximize the value of its assets when they're sold, but you think Softbank is getting too much in return.  Then you go find an investment banker that specializes in DIP financing and you arrange for a hedge fund to agree to provide the $75 million on terms more favorable to the original debtors.  Then you file a motion with the court saying that.