The three-judge commercial arbitration tribunal has ruled in favour of satellite manufacturer Thales Alenia Space in its dispute with Globalstar over the mobile satellite operator’s option to purchase up to 23 second-generation satellites in addition…
The three-judge commercial arbitration tribunal has ruled in favour of satellite manufacturer Thales Alenia Space in its dispute with Globalstar over the mobile satellite operator’s option to purchase up to 23 second-generation satellites in addition to the 25 satellites already purchased.
The arbitrators found that terms provided for in the 2009 amended and restated satellite manufacturing contract between the Thales and Globalstar no longer govern any future purchase. The arbitrator’s ruling requires Globalstar to pay Thales approximately €53m in contract termination charges by 9 June 2012.
Globalstar stated that in response it has already initiated post-ruling discussions with Thales in order to find a mutually agreeable solution for payment of the fine. The company said that without these discussions ‘there are likely to be materially negative consequences to Globalstar, including with respect to its debt agreements, ongoing work with Thales and business operations.’
Commenting on the ruling and the subsequent discussions with Globalstar, Reynald Seznec, CEO of Thales Alenia Space said: “We are interested in addressing the issues related to the purchase of additional satellites. We shall work together with Globalstar management with a view to find a solution for the benefit of all stakeholders. We thank all parties for their continued assistance as we go through this process”.
Globalstar’s chairman and CEO, Jay Monroe, stated: “Although we had hoped for a different outcome, we have been in constant contact with Thales over the last several months as completion of Phase 2 satellites continues, and over the past days to negotiate acceptable terms for ordering additional satellites. Having already paid over E450m to Thales and having experienced satellite delivery delays approaching two years, we remain hopeful that a mutually acceptable agreement can be reached.”
Monroe added, “Globalstar has been operating under extremely challenging circumstances for the past few years as a result of delayed satellite deliveries and remains amenable to negotiating a positive resolution with Thales.”
The dispute between the two companies went public following Globalstar’s announcement on 3 October 2011 that it had placed an order with Thales for six satellites in addition to the 25 satellites that the company has already ordered under the second-generation constellation contract.
Globalstar claimed that under the terms of the contract the new satellites would have a fixed price of approximately €55m due to a €53m prepayment and the purchase of €12m in long lead items.
Two days later, Thales rejected the satellite operator’s order claiming that Globalstar had no right to place the order as the contract for the second batch of satellites, Phase 3, has already been terminated by the mobile satellite operator. To that end, Thales sought a declaration and award of termination charges of €60.5m.
In order to resolve the issue, a hearing by American Arbitration Association was been scheduled for 24 January 2012.
The tribunal’s decision means that if Globalstar chooses to order six additional satellites for its second generation LEO constellation then it will have to pay a newly negotiated amount.
In addition, these satellites would not be covered under the company’s US$586.3m Coface guaranteed loan facility that Globalstar secured back in 2009 in order to fund the Thales order.
Earlier this year, Globalstar secured an amendment to the senior secured facility extending the initial repayment date by a year as well as makes further adjustments to the loan’s financial and operating covenants.
Globalstar will now make the first repayment of the loan prior to June 2013 instead of June 2012. The precise date is dependent on the date of the company’s fourth launch of second-generation satellites and will be the earlier of June 2013 or eight months post-launch.
In addition, the covenants connected to Globalstar’s 2011 and 2012 EBITDA requirements have been reduced, while the required date for the 24th next generation satellite to be placed into service has been extended.
