Satellite operators and builders will continue to struggle to secure finance for new projects (at least for the time being) in the wake of the highly publicised bankruptcies, launch failures and regulatory problems that plagued the industry in 1999.

This at least was the consensus that seemed to be emerging at an AIC conference on Space and Satellite Finance in London last week.

The junk bond market in particular seems to have turned away from satellite projects in the wake of the Chapter 11 bankruptcies of Iridium and ICO Global Communications. “High yield investors are looking for liquidity,” said Andrew McSpadden, vice president, European media investment banking with Donaldson, Lufkin & Jenrette. From a high point in 1997, the market has declined, despite one-offs such as the successful $2 billion placing by DISH operator Echostar in the first quarter of 1999.

Much could depend on the performance of Globalstar. “The high yield market with respect to Globalstar is in a wait and see mode,” said McSpadden.

However, the market could improve towards the end of this year, particularly if there is good news about mobile satellite services. “A named investor like Craig McCaw [in ICO] is a positive signal. The high yield market will respond to the closing of that transaction,” said McSpadden. He also expressed a positive opinion on the possible presence in ICO as an investor of Indian media entrepreneur Subhash Chandra. “There are a large number of potential consumers in India,” he said. “I think his involvement is positive.”

Meanwhile, venture capitalists, hitherto largely notable by their absence from the satellite business, are beginning to take an interest in niche areas such as remote sensing and satellite navigation.

Other speakers agreed that banks in general have been stung and are turning towards business areas they consider to be more reliable. This is reinforced by the fact that there is a dearth of satellite expertise amongst the bankers: most of the people dealing with this field are from a telecom background, and most favour a broad-brush approach rather than a highly detailed analysis of the business case for a particular project. “There’s a resistance to allocate scarce resources for long distance study for an uncertain pay- off,” said Scott Paige, senior vice-president, head of special finance, Mitsubishi Trust & Banking Corporation.

“Most of the teams in banks are telecom teams, not satellite teams,” pointed out Leo Hellinga of tax advisory specialists Babcock & Brown. “Inexperienced banks have retreated to traditional markets.” Hellinga said he believed it would some time before high yield finance became once more available. “The return of high yield and non-recourse debt will not [happen] until the third quarter [of 2000] because of the attractiveness of other technologies and the broad-brush approach [the banks] take.”

One option is customer financing on the model developed by Arianespace, whereby a major satellite launcher or manufacturer becomes involved in helping secure finance for its own customers. The European satellite launcher partnered with three customers in 1999 (including Euro*Star and Eurasiasat), with three further deals in the pipeline this year (see separate story), according to Brigitte Vienne, vice-president, finance and risk management, Arianespace.