[Satellite News 09-07-10] For satellite operators, new or old, now is potentially a great time to get new financing, according to Euroconsult World Satellite Business Week panelists.
    The forum, “Commercial and Investment Banking: Financing Options for Satellite Businesses,” discussed the dramatic turnaround that high-yield finance markets have seen, as well as the options that are now open to satellite players.
   “The market conditions today are as attractive as they have ever been. There has been $5.7 billion raised in the high yield market since the market crashed two years ago. Intelsat has done two issues, for example. The high yield market has become substantially healthier. Over the course of the recovery, investors have got more excited about the satellite industry,” said Fred Turpin, managing director, JP Morgan. “The satellite high yield market is 50 percent better then the actual market today. People have been willing to come back. The market has improved.”
    The message of the panel is that the satellite operators who want access to attractive financing move fast. “Certainly, for satellite operators, there are also a wide variety of options for financing. It is a good time to raise additional capital, or re-finance debt. The index is very attractive for new financing/issuers. However, the markets are not as deep as they were a few years ago. The conditions are exceptionally good right now. Markets are very focused on liquidity,” said Turpin.
   Satellite players also have a greater range of options when getting access to financing. Philippe-Olivier Rousseau, a senior banker for BNP Paribas said that Export Credit Agency (ECA) financing has become increasingly fashionable over the last year. “Before the crisis, ECA financing was for emerging markets. Then ECA has opened up to new opportunities in the industry. There has been a cultural shift. In the past three years, ECA became a great contributor to overall financing. You can go up to 85 percent financing of the project. Financing is quick (to organize) in this area. It provides operators options to access new financing at attractive rates.”
   However, while this form of financing has become part of the mainstream of the satellite industry, some bankers on the panel, like Clifton Marriott, managing director at Goldman Sachs, argued there were some potential disadvantages in this financing. “A new project (that gains ECA finance) will likely have a project finance structure. The ability to have flexible funding going forward is minimal. It is potentially a lot cheaper, but it comes at the cost of reduced flexibility.”
   Yet, while access to financing is strong right now, there is still a degree of caution amongst the investment bank community. “All markets today, whether debt or equity, are still nervous,” said Rousseau.
James Murray, a managing director at Morgan Stanley, agrees. “There is a nagging question about the next thing for the satellite industry. When is the next act in financing for a single visionary? This risk of government lending could distort the lending balance in the industry. ECA and EXIM are forms of industrial policy. You just hope that it does not lead to uneconomic decisions in the long-term.”
   With many of the main satellite operators performing well, and showing strong growth, a key issue people on the panel discussed is how operators are going to use this cashflow. “One of the important questions is how they (satellite operators) are going to use cashflow. They have a lot of cashflow, but the question is how to grow with high margins. I think it is a key strategic issue on how to use cashflow,” Rousseau said.
    According to Murray, investors are looking at how cashflow will translate in revenues going forward. “For the very large operators, Inmarsat’s Ka-band satellites initiative generated a lot of attention. People took notice of this. They have an enormous amount of cashflow.”
    However, to add a further note of caution, aggressive capital expenditure plans on behalf of FSS operators could be coming to an end. “On the FSS side, capital expenditure remains pretty high through 2012. It is expected to decrease significantly after 2012. Capital expenditure for MSS operators is going up. The FSS operators are in the cycle spending some significant amounts on new capacity and refreshing fleets,” said Marriott.