Eutelsat OneWeb: Constellation - General Thread

[TorenAltair]

At least in Germany, the following is the point: DIP lenders have precedence above old loans/debts/liabilities. So if a company gets liquidated, the DIP lender (in Germany) gets paid back first (if there is enough money). The reasoning behind the concept is that the new creditor invested after opening the insolvency process.

[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.

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.
...

IMO if the lender thinks this is (a little) good money thrown in after bad, then the lender would want to keep their place in line.

IMO the court is right to allow more investment, (with new money getting preferential payback up to 100% + interest,  but that 3-to-1extra leverage is wrong.

Anyway, we should take it somewhere else probably, in case there are real developments..

[jongoff]

12% per month interest rate makes me shudder. I've had to take a few really crappy loans in the past (all paid off now, yay!), but I've never seen any that were much worse than half that bad. I'd love to see OneWeb somehow rescued (they were so far the only constellation taking active debris removal seriously enough to buy grapple fixtures), and hope this DIP financing gives them enough breathing room to find a solution, but dang, 12%/mo sucks.

~Jon

[ChrisWilson68]

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?

Yes, the only difference is who gets paid first.

Saying this doesn't cost OneWeb anything is like saying a non-bankrupt company can issue new shares and it doesn't cost the company anything.  For example, when SpaceX creates new shares and sells them for $500 million, is this just free money for SpaceX?  Does it cost SpaceX anything?  Well, the cost is in dilution of existing shareholders.  SpaceX management is supposed to be acting on behalf of its existing shareholders.  If they create a bunch of new shares and sell them, they'd better get enough in return to make up for the dilution of its existing shareholders.  If the company just issued millions of new shares and gave them away for free to Elon Musk, then they would have cost dilution to their other shareholders.  The company would be sued for breach of fiduciary duty to its shareholders, because they took an action that hurt existing shareholders without providing compensating value.

The same is true for OneWeb with respect to the 3x multiple they're giving in return for DIP financing.  It's costing its creditors by reducing the amount those creditors stand to receive.  The higher the multiple, the worse it is for those existing creditors.  While in bankruptcy the duty of OneWeb management is to those existing creditors.  So the cost in terms of existing creditors potentially getting less is a very import factor that they have to take into account.  They owe a duty to their existing creditors to offer the very lowest multiple in exchange for the DIP financing that they can possibly get.

[Rondaz]

The One Web launch 2 satellites interrupted their orbit raising on Apr 3. They were expected to join launch 1 at 1100 km altitude. Maybe due to the bankruptcy?

https://twitter.com/planet4589/status/1250221730104332290

[ChrisWilson68]

The One Web launch 2 satellites interrupted their orbit raising on Apr 3. They were expected to join launch 1 at 1100 km altitude. Maybe due to the bankruptcy?

That's weird.  The launch 3 satellites still seem to be doing their orbit raising.  Apr 3 is a few days after the Chapter 11 filing, not on the exact date of the filing.

Maybe they paused to give more options to a potential purchaser to change the plans and deploy the satellites in a different oribt?  For now, they can conserve propellant and leave them in a lower orbit.  If they decide later to move them up to the originally-planned orbit, they can do it then.

Or maybe during orbit raising they're crossing the orbits of more things and they have to do more calculations to avoid the possibility of collision.  I don't really know how many people it takes to do those kinds of checks, but maybe in bankruptcy with the layoffs they don't have enough staff to do it safely?

Or maybe they figure there's a risk to doing the orbit raising, either from having an onboard failure or hitting something and if they do have some kind of anomaly it lowers the price they can get to sell their assets?  So maybe they don't want to risk possible bad news.  Maybe there's little upside in the near future for them reaching their target orbits and some small but non-trivial risk of downside for the value of their assets.

[ringsider]

I can see someone like Airbus being interested in picking that up for a song, potentially offsetting some of the cost advantage Spacex has by gaining the factory, ground assets and orbital assets for a tiny fraction of what Wyler spent to get to that point. Airbus can work with Arianespace to structure a sweet deal to pay back the money owed and rescue all those Soyuz launches, this helping itself while also hurting Virgin's launch business in the process. Note that Virgin was not listed as a creditor, possibly because to do so would be admiting the money is actually owed, which OneWeb contends is not the case.

It's the same model as Iridium; if you don't have to pay the ridiculous upfront costs, the business case closes much more readily.

So here is a thought: the $300m DIP structure is actually a signal to Airbus and Arianespace.

The SoftBank DIP financing is $75m in operating cash plus $225m in payback of debt to Softbank.

Now just by some extraordinary quirk of coincidence , Arianespace is owed about $238.5m, which just happens to be almost exactly $225m + 6 months of late payment interest at ~1% (6 x $2.25m = $13.5m).

So what OneWeb is saying to Arianespace, either tacitly via this DIP financing, or directly behind the scenes, is this:

1) drop the late payment interest on your bill, that's notional anyway
2) through some kind of accounting movements within your group move that $225m debt marker into our pockets
3) and you can have the the company for whatever is spent operationally to keeping it running in the meantime

And in addition:

4) the sooner you make it happen, the less that extra cost in (3) is going to be
5) we don't give a flying foghorn about other shareholders, as they don't have the cash balances to rescue this situation.

This will allow Arianespace - or more likely the mothership, Airbus, via the same accounting movements - to pick up OneWeb for almost exactly 10c on the dollars invested to date...

[ChrisWilson68]

I can see someone like Airbus being interested in picking that up for a song, potentially offsetting some of the cost advantage Spacex has by gaining the factory, ground assets and orbital assets for a tiny fraction of what Wyler spent to get to that point. Airbus can work with Arianespace to structure a sweet deal to pay back the money owed and rescue all those Soyuz launches, this helping itself while also hurting Virgin's launch business in the process. Note that Virgin was not listed as a creditor, possibly because to do so would be admiting the money is actually owed, which OneWeb contends is not the case.

It's the same model as Iridium; if you don't have to pay the ridiculous upfront costs, the business case closes much more readily.

So here is a thought: the $300m DIP structure is actually a signal to Airbus and Arianespace.

The SoftBank DIP financing is $75m in operating cash plus $225m in payback of debt to Softbank.

Now just by some extraordinary quirk of coincidence , Arianespace is owed about $238.5m, which just happens to be almost exactly $225m + 6 months of late payment interest at ~1% (6 x $2.25m = $13.5m).

So what OneWeb is saying to Arianespace, either tacitly via this DIP financing, or directly behind the scenes, is this:

1) drop the late payment interest on your bill, that's notional anyway
2) through some kind of accounting movements within your group move that $225m debt marker into our pockets
3) and you can have the the company for whatever is spent operationally to keeping it running in the meantime

And in addition:

4) the sooner you make it happen, the less that extra cost in (3) is going to be
5) we don't give a flying foghorn about other shareholders, as they don't have the cash balances to rescue this situation.

This will allow Arianespace - or more likely the mothership, Airbus, via the same accounting movements - to pick up OneWeb for almost exactly 10c on the dollars invested to date...

I don't follow your logic here.

[ringsider]

I can see someone like Airbus being interested in picking that up for a song, potentially offsetting some of the cost advantage Spacex has by gaining the factory, ground assets and orbital assets for a tiny fraction of what Wyler spent to get to that point. Airbus can work with Arianespace to structure a sweet deal to pay back the money owed and rescue all those Soyuz launches, this helping itself while also hurting Virgin's launch business in the process. Note that Virgin was not listed as a creditor, possibly because to do so would be admiting the money is actually owed, which OneWeb contends is not the case.

It's the same model as Iridium; if you don't have to pay the ridiculous upfront costs, the business case closes much more readily.

So here is a thought: the $300m DIP structure is actually a signal to Airbus and Arianespace.

The SoftBank DIP financing is $75m in operating cash plus $225m in payback of debt to Softbank.

Now just by some extraordinary quirk of coincidence , Arianespace is owed about $238.5m, which just happens to be almost exactly $225m + 6 months of late payment interest at ~1% (6 x $2.25m = $13.5m).

So what OneWeb is saying to Arianespace, either tacitly via this DIP financing, or directly behind the scenes, is this:

1) drop the late payment interest on your bill, that's notional anyway
2) through some kind of accounting movements within your group move that $225m debt marker into our pockets
3) and you can have the the company for whatever is spent operationally to keeping it running in the meantime

And in addition:

4) the sooner you make it happen, the less that extra cost in (3) is going to be
5) we don't give a flying foghorn about other shareholders, as they don't have the cash balances to rescue this situation.

This will allow Arianespace - or more likely the mothership, Airbus, via the same accounting movements - to pick up OneWeb for almost exactly 10c on the dollars invested to date...

I don't follow your logic here.

The trick is the accounting movements - I'm not the brightest spark on this but with the intellectual firepower of a few finance MBAs and investment bankers I am sure it can be done something like this:

- Arianespace agrees to forgive the $225m debt OneWeb owes.
- This creates $225m more "value" inside the equity part of the enterprise valuation of OneWeb, which can now be released to the other debtors - Softbank being first in line.
- Airbus buys Oneweb in an agreed sale for $300m (say) plus guaranteeing the court it will provide operational cashflow.
- Softbank gets it's $225m debt back from that sale price.
- Nobody else gets anything - this is actually the leverage Softbank is creating, because neither would Arianespace get anything much in a firesale as they are an unsecured creditor.
- Airbus then places contracts with Arianespace for future launches that make up for the $225m debt forgiveness, but at a cost that is sweet because it is typical Airbus/Arianespace JV internal price. This arrangement means Arianespace has lost almost nothing compared to losing that entire manifest of OneWeb launches.
- Arianespace secures it's manifest, Airbus get a cheap LEO asset, and nobody in Europe takes a financial hit because...
- ...Airbus applies for some kind of COVID-19 subsidy from the EU to pay for the entire thing.

I'm probably not exactly right but the sizing of the numbers are not a coincidence in my opinion. It's like sizing a poker bet to signal what you want to happen next.

[ChrisWilson68]

I can see someone like Airbus being interested in picking that up for a song, potentially offsetting some of the cost advantage Spacex has by gaining the factory, ground assets and orbital assets for a tiny fraction of what Wyler spent to get to that point. Airbus can work with Arianespace to structure a sweet deal to pay back the money owed and rescue all those Soyuz launches, this helping itself while also hurting Virgin's launch business in the process. Note that Virgin was not listed as a creditor, possibly because to do so would be admiting the money is actually owed, which OneWeb contends is not the case.

It's the same model as Iridium; if you don't have to pay the ridiculous upfront costs, the business case closes much more readily.

So here is a thought: the $300m DIP structure is actually a signal to Airbus and Arianespace.

The SoftBank DIP financing is $75m in operating cash plus $225m in payback of debt to Softbank.

Now just by some extraordinary quirk of coincidence , Arianespace is owed about $238.5m, which just happens to be almost exactly $225m + 6 months of late payment interest at ~1% (6 x $2.25m = $13.5m).

So what OneWeb is saying to Arianespace, either tacitly via this DIP financing, or directly behind the scenes, is this:

1) drop the late payment interest on your bill, that's notional anyway
2) through some kind of accounting movements within your group move that $225m debt marker into our pockets
3) and you can have the the company for whatever is spent operationally to keeping it running in the meantime

And in addition:

4) the sooner you make it happen, the less that extra cost in (3) is going to be
5) we don't give a flying foghorn about other shareholders, as they don't have the cash balances to rescue this situation.

This will allow Arianespace - or more likely the mothership, Airbus, via the same accounting movements - to pick up OneWeb for almost exactly 10c on the dollars invested to date...

I don't follow your logic here.

The trick is the accounting movements - I'm not the brightest spark on this but with the intellectual firepower of a few finance MBAs and investment bankers I am sure it can be done something like this:

- Arianespace agrees to forgive the $225m debt OneWeb owes.
- This creates $225m more "value" inside the equity part of the enterprise valuation of OneWeb, which can now be released to the other debtors - Softbank being first in line.
- Airbus buys Oneweb in an agreed sale for $300m (say) plus guaranteeing the court it will provide operational cashflow.
- Softbank gets it's $225m debt back from that sale price.
- Nobody else gets anything - this is actually the leverage Softbank is creating, because neither would Arianespace get anything much in a firesale as they are an unsecured creditor.
- Airbus then places contracts with Arianespace for future launches that make up for the $225m debt forgiveness, but at a cost that is sweet because it is typical Airbus/Arianespace JV internal price. This arrangement means Arianespace has lost almost nothing compared to losing that entire manifest of OneWeb launches.
- Arianespace secures it's manifest, Airbus get a cheap LEO asset, and nobody in Europe takes a financial hit because...
- ...Airbus applies for some kind of COVID-19 subsidy from the EU to pay for the entire thing.

I'm probably not exactly right but the sizing of the numbers are not a coincidence in my opinion. It's like sizing a poker bet to signal what you want to happen next.

I'm afraid I don't think your logic is correct.

You're using the term "enterprise valuation of OneWeb" without precisely defining it, and I think it's muddling two distinct things.  I think it's useful to consider two different entities: old-OneWeb and new-OneWeb.

old-OneWeb is the pre-Chapter 11 OneWeb holding company.  It has stock holders and debtors.

new-OneWeb is the post-Chapter 11 entity.  It will either be sold off outright at auction as a whole or sold off in pieces, or its stock distributed to some combination of creditors of old-OneWeb and, possibly, stock holders of old-OneWeb.

new-OneWeb only owes money to Softbank.  It owes $300 million to Softbank.  It owes nothing else to anyone.

If Arianespace forgives its debt to OneWeb, it's forgiving its debt to old-OneWeb.  This doesn't help Softbank in any way with respect to how likely they are to get paid on their $300 million of DIP financing.  It doesn't help new-OneWeb in any way.  It doesn't make new-OneWeb more or less valuable.  It only affects who gets benefits from new-OneWeb if it's worth more than the $300 million of DIP financing.

Arianespace forgiving the debt has no bearing at all on whether anyone else gets anything.  If new-OneWeb is worth more that $300 million, all the debtors of old-OneWeb split the excess.  There will be more to go around if Arianespace forgives its portion of the debt, but that's all.

There's no benefit at all to Arianespace for them to forgive their debt.  None.  If new-OneWeb is worth more than $300 million, it would just be Arianespace throwing away money for the benefit of the other creditors of old-OneWeb.  If new-OneWeb is worth $300 million or less, it has no effect at all.

If Arianespace wants to pay $300 million to get OneWeb and nobody else wants to pay more, it will get OneWeb.  If someone else wants to pay more, they will not be able to get it for $300 million.

The only effect the $300 million DIP terms have on the sales price are in the gaming of the auction if there's a single round of bidding with sealed bids.  In an auction with sealed bids, it's in the interests of each party to bid below what they think OneWeb is worth by enough to balance the possibility of losing the auction with the benefit of getting it for less than it's worth.  But with the money up to $300 million going directly to Softbank, Softbank has no incentive to underbid any amount less than $300 million.  So, if Softbank believes the worth of OneWeb is $300 million or less, their optimal strategy now is to bid exactly what they think it is worth.

The DIP terms also communicate this to all other potential bidders, so that should tend to make their estimate of how much Softbank will bid go up somewhat, which means they will be incentivized to make their bids somewhat higher, while still a bit below what they believe it is worth.

[matthewkantar]

At how many pennies on the dollar would it make sense for a company like Kepler to buy Oneweb and bury it? Would such an action be legal?

[FutureSpaceTourist]

https://twitter.com/m_ladovaz/status/1251268020602880003

We cannot keep anything “secret” :-). The  @OneWeb Ops team is flying the fleet safely and is keeping our sats in an orbital “sweet spot” of around 600 km which will preserve the life by reducing radiation and giving flexibility for their final orbital plane destination.

[FutureSpaceTourist]

SoftBank spearheads OneWeb loan offer to complete spectrum sale
by Caleb Henry — April 13, 2020

WASHINGTON — OneWeb is asking a bankruptcy court for permission to borrow between $75 million and $300 million the company says it needs to stay afloat while it attempts to sell its spectrum assets.

https://spacenews.com/softbank-spearheads-oneweb-loan-offer-to-complete-spectrum-sale/

Sorry if I missed it up thread, this looks like a key paragraph:

OneWeb’s primary spectrum filings cover Ku-band frequencies for downlinks and Ka-band for uplinks for a constellation of 720 satellites in low Earth orbit. The company brought that spectrum into use with the International Telecommunication Union, and passed the agency’s 10% milestone last month when it launched 34 satellites on an Arianespace Soyuz days before filing for bankruptcy.

So, if I understand correctly, the last launch has the effect of significantly increasing OneWeb’s assets? (assuming others may value their spectrum)

[gongora]

The last launch didn't make much difference, they still had years to meet that milestone.

[DistantTemple]

The last launch didn't make much difference, they still had years to meet that milestone.

Did that launch achieve a milestone or not?

If it did, it sounds like it locks in the spectrum rights, if not, then the spectrum rights are less valuable, to whoever might "buy" them, as they would need to then reach that milestone.

A bit like buying land with planning consent!
Maybe I have made a mistake?

[lonestriker]

Any prospective buyer would still need to complete the constellation as filed and on time unless they can get modifications granted.  Given the tight time constraints, redesigning the satellites would seem to be a non-starter.  I can't imagine that the costs to complete the constellation would be cheaper or on time if major changes were made to the satellites.  The best hope here would be to get them launched considerably cheaper than OneWeb could.  Blue with NG might be able to do it eventually, but they're not flying yet.  SpaceX might be cheaper, but we know why they weren't chosen as the launch provider.

So, from those premises as a starting point, if they couldn't find someone to invest the billions of dollars more to complete and launch the planned OneWeb constellation before bankruptcy, would it make any sense for someone to step in and pay even more to do the same thing?  Unless casting off OneWeb's old corporate structure and/or existing debts makes the business model more viable.

I could see someone like Amazon/Bezos low-ball bidding for the assets and then trying to submit applications to extend the deadlines.  But, that cost has to be less than it would cost them to go through the same FCC/ITU paperwork.  Could SpaceX put in a low-ball bid just to keep the spectrum rights away from others?  Is there any appetite in the current COVID environment for venture capitalists to gamble on something this expensive, competing against Starlink, with a low probability of success?

[ChrisWilson68]

Could SpaceX put in a low-ball bid just to keep the spectrum rights away from others?

What about SpaceX buying the spectrum rights to convert over to their own Starlink satellites?  They'd need regulatory approval for modifying the spectrum rights to apply to their satellites.  I don't know how likely it is that they could get such approval.

[RocketGoBoom]

What about SpaceX buying the spectrum rights to convert over to their own Starlink satellites?  They'd need regulatory approval for modifying the spectrum rights to apply to their satellites.  I don't know how likely it is that they could get such approval.

SpaceX doesn't need to do anything. If OneWeb fails in bankruptcy due to a lack of any buyer, which is the most likely scenario, then SpaceX automatically moves up on the list for ITU priority spectrum rights.

Nobody is likely to buy the OneWeb spectrum rights for the many reasons that have been documented here.

1) Health and financial crisis leads many potential investors to minimize risk. LEO constellations are high risk.

2) Jeff Bezos / Amazon don't need OneWeb spectrum. If SpaceX Starlink and Amazon Kuiper are the only two viable constellations, then there is sufficient LEO spectrum for both. The only issue is if there is a 3rd or 4th constellation.

3) Any buyer of OneWeb spectrum would likely need to complete the OneWeb constellation with OneWeb satellites in order to meet the ITU schedule. There is not enough time to start over with a new design. So any OneWeb buyer would need to invest another $3 billion to $5 billion to complete and operate the OneWeb constellation.

4) Any new potential investors have to evaluate whether the OneWeb constellation, as designed, is financially competitive versus the Starlink design with much lower build and launch costs per Gbps of capacity. It has been estimated that the OneWeb constellation is 600% more expensive per Gbps of capacity.

5) If there were any serious investors considering OneWeb, they would likely be jumping in now offering DIP financing in the BK court. That is the best way to gain control of OneWeb.

6) OneWeb has already fired many of their key employees. It will be almost impossible to bring OneWeb's engineering team back together. They are job hunting already and the top talent probably already has new jobs, even in this market.

Just my opinion. OneWeb is dead. They just don't know it yet.

[ChrisWilson68]

5) If there were any serious investors considering OneWeb, they would likely be jumping in now offering DIP financing in the BK court. That is the best way to gain control of OneWeb.

There's a lot of merit in a lot of your points here, but on this one I disagree.  There's no particular reason for a party interested in buying the OneWeb spectrum to provide DIP financing.  The party that provides the DIP financing is at no advantage in the bidding for the OneWeb assets.  The party that bids the most for the assets gets the assets, it's that simple.  The bidding is overseen by the court and it would be illegal for it to not go to the highest bidder.

There are lots of bankruptcy cases where the winner of the assets is not the provider of DIP financing.

There might be rare cases where a party might see proving DIP financing as advantageous because it wants to bid on the assets.  If the company can't get DIP financing elsewhere and is in danger of having the assets degraded because of it, a party interested in bidding might step in because it wants the assets preserved.  But in the OneWeb case Softbank was willing to provide the DIP, so there's no need for another party to do so.  Alternatively, a bidder might try to influence other bidders by providing DIP financing as a signal it's going to bid at a certain level to discourage other bidders from bothering.  But on the other hand it's usually even more advantageous to not signal a bid, to discourage other portential bidders from bidding higher to try to outbid the signalling party.

So the lack of a DIP offer from someone else is no evidence of a lack of future bidders for OneWeb assets when they're sold off.

[ChrisWilson68]

3) Any buyer of OneWeb spectrum would likely need to complete the OneWeb constellation with OneWeb satellites in order to meet the ITU schedule. There is not enough time to start over with a new design. So any OneWeb buyer would need to invest another $3 billion to $5 billion to complete and operate the OneWeb constellation.

A number of posters have expressed agreement with this idea.

I think there's an important piece of evidence against it, however.

OneWeb, in it's Chapter-11-related statements, has repeatedly talked about auctioning off the spectrum.  If the spectrum rights are only useful if the buyer re-starts and complete's OneWeb's planned constellation, why is OneWeb talking about selling the spectrum instead of selling the business?  The way OneWeb is talking, it is very clearly implying a sale of the spectrum rights severed from the business.

OneWeb should know better than any of us whether the spectrum rights are useful separate from the business.  And they would have more of an emotional investment than any of us in seeing the constellation launched as planned.  Yet they are talking exclusively in terms of selling the spectrum severed from the rest of the business.  Why would that be if it were true that the spectrum rights would only realistically be useful as part of OneWeb's original constellation plan?