Mobile satellite operator Globalstar has warned it could be forced into Chapter 11 bankruptcy protection if it is unable to resolve a contract dispute with manufacturer Thales Alenia Space.
Arbitrators ruled in Thales’ favour last month over the row,…
Mobile satellite operator Globalstar has warned it could be forced into Chapter 11 bankruptcy protection if it is unable to resolve a contract dispute with manufacturer Thales Alenia Space.
Arbitrators ruled in Thales’ favour last month over the row, requiring Globalstar to pay the manufacturer around €53m in contract termination charges by 9 June.
However, Globalstar announced on 11 June that it had not paid these charges, meaning they are now accruing simple interest while it negotiates with Thales for another resolution.
If the operator is unable to reach another resolution, it said “there are likely to be materially negative consequences to Globalstar, including with respect to its debt agreements, ongoing work with Thales, and business operations, and Globalstar may be required to consider strategic alternatives, including, without limitation, seeking protection under Chapter 11 of the US Bankruptcy Code”.
On 23 May, Thales notified Coface that it would consider a failure of Globalstar to pay the termination charges as a default on a loan the operator has guaranteed by the export credit agency. This US$586.3m loan was secured back in 2009 to support Globalstar’s satellite manufacturing contract with Thales. Under contract rules, if the default is not resolved within 30 days of notifying Coface, Thales will be able to suspend, or terminate, its manufacturing contract with Globalstar.
In a statement emailed on 12 June, a Thales spokeswoman said: “Thales Alenia Space confirms its intention to continue post ruling discussions with Globalstar, to try seeking mutually agreeable solutions, including the completion of the constellation with additional satellites as well as taking into account the settlement of the arbitration.”
The dispute itself centres on a 2009 agreement that has already seen Globalstar purchase 25 satellites – the final six of which are near completion and were set to launch later this year. Globalstar had been seeking to order a further 23 satellites for its second generation constellation under the same terms as its first batch. However, because of issues including manufacturing delays, Thales said these terms are no longer valid – a position that May’s arbitration tribunal agreed with. The decision also means that any additional satellites Globalstar orders will not be covered under the 2009 Coface agreement.
Globalstar has publicly criticised Thales’ manufacturing delays, which were partly caused by issues affecting the satellites’ momentum wheels. Such issues led to one of the second generation spacecraft being taken out of service.
Following the arbitration decision last month, however, Globalstar CEO Jay Monroe said he was hopeful of reaching a mutually acceptable agreement with Thales, having “already paid over €450m to Thales and having experienced satellite delivery delays approaching two years”.
Earlier this year, Globalstar amended the senior secured facility it holds to fund its next generation satellites. It extended the first repayment of the loan by a year to June 2013, although the exact date depends on when Globalstar’s next batch of six satellites are launched, and will be the earlier of June 2013 or eight months post-launch.
The company also reduced covenants tied to its 2011 and 2012 EBITDA requirements, and extended milestones for when its satellites must become operational.
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