April 23, 2020 – SpeedCast International Limited and 32 affiliated Debtors (formerly listed on Australia's ASX, ticker "SDA," “Speedcast” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-10343. The Debtors, an international remote communications and information technology services provider, are represented by Alfredo R. Pérez of Weil, Gotshal & Manges LLP. Further board-authorized engagements include (i) Herbert Smith Freehills as bankruptcy counsel, (ii) FTI Consulting, Inc. as financial advisors (and supplying a chief restructuring officer), (iii) Moelis Australia Advisory Pty Ltd and Moelis & Company LLC as investment bankers and (iv) Kurtzman Carson Consultants as claims agent.
The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $500.0mn and $1.0bn ($689.1mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Intelsat Corporation ($44.8mn trade debt), (ii) Immarsat Global Limited ($23.4mn trade debt) and (iii) New Skies Satellites B.V. ($3.1mn trade debt). 16 of the Debtors' top 30 unsecured creditors (a list which reads like a who's who of global satellite players) have claims in excess of $1.0mn with McKinsey & Co figuring in the mix with a $2.0mn professional services claim.
In a press release announcing the filing, the Debtors advised that “after evaluating a variety of options to strengthen its balance sheet in ways that support its long-term growth and success, it has initiated a voluntary financial restructuring under chapter 11 of the United States Bankruptcy Code.
The financial restructuring the Company is now undertaking will allow Speedcast to overcome the near-term headwinds it is facing as a result of pressures on its customers’ businesses. A significant percentage of the Company’s customers are in the maritime and oil and gas industries and have extended payment terms as they work to overcome significant industry pressures. The impact on Speedcast’s business was further exacerbated as the COVID-19 pandemic spread worldwide and halted activities for Speedcast’s cruise line customers. These dynamics made it impossible for Speedcast to complete its planned equity raise – or any recapitalization transaction – outside of the Court-supervised chapter 11 process."
Goals of the Chapter 11 Filings
The Healy Declaration details efforts to restructure that simply ran out of runway as capital markets deteriorated, maritime clients suffered and COVID-19 marched inexorably on; leaving the Debtors, unable to meet a Net Leverage Covenant under their credit agreement, with little choice to seek shelter from multiple storms in Chapter 11: "In March 2020, the Company announced that, given the equity market conditions precluding a meaningful equity raise, it had retained Moelis to advise on funding and recapitalization alternatives, including the potential sale or merger of the Company, select asset sales, and/or other financing options. …The Company subsequently considered a number of alternative paths to address its capital structure and liquidity needs without the need for a comprehensive in-court restructuring process, including conducting a multi-track strategic and financial alternative process with the assistance of the Advisors, which included execution of a forbearance agreement, a new secured debt financing, exploring a sale of some or all of the Company’s assets, and restructuring options. Given its global footprint, the Company spent a significant amount of time and resources analyzing restructuring alternatives in foreign jurisdictions, particularly in Australia. However, given the short time frame allowed for obtaining additional financing and deteriorating conditions in the capital markets, Speedcast’s Board of Directors commenced the Chapter 11 Cases to properly restructure the Company and protect its operations and employees, as well as preserve value for its stakeholders."
- Portsea Asset Management: 14.01%
- DS Investments: 9.90%
- Perennial Value Management: 6.02%
- The Goldman Sachs Group Inc.: 5.61%
The Debtors have lined up $90.0mn of new money debtor-in-possession ("DIP") financing, $35.0mn to be available on an interim basis. In addition, the Debtors will seek approval of a two-stage “roll-up” of a maximum of $90.0mn of the approximate $680.0mn owed under their Prepetition Credit Agreement to a second-out position in the DIP Facility.
As of the Petition date, the Debtors have outstanding funded debt obligations in the aggregate amount of approximately $689.1mn, which amount consists of (i) approximately $87.7mn of borrowings under a revolving credit facility, (ii) approximately $591.4m in term loans and (iii) an approximately $10.6mn in prepetition credit facility outstanding letters of credit.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Healy Declaration”), Michael Healy, the Debtors' Chief Restructuring Officerposition] detailed the events leading to Speedcat's Chapter 11 filing. The Healy Declaration states: "To capture the potential synergies and margins possibly arising from the Company’s recent growth, the Company was pursuing an operational transformation plan (the ‘Transformation Plan’) that contemplated an equity raise and internal reorganization that would maximize the value of the enterprise on a go-forward basis. Despite its efforts, a number of factors throughout 2019 contributed to the lower than expected financial results, including (i) compressions in margin, (ii) higher than expected revenue declines in Speedcast’s Globecomm business compared to the initial investment case, (iii) cost-saving measures hampering the realization of integration scale benefits, (iv) key customer profitability issues, and (v) financial stress impacting relationships and improvement programs.
Further, the lasting and distressed market conditions in the maritime and oil and gas industries, and the recent and dramatic impact of the COVID-19 pandemic, have impacted all players in the global marketplace. The Company has been particularly hard hit by these adverse market conditions. The outsized impact on the Company’s Maritime Business and Energy Business customers has manifested in a dramatic reduction in cash receipts. This macroeconomic downturn, along with the above-mentioned headwinds that contributed to the lower than expected FY19 financial results, made clear that the Company would not satisfy the Net Leverage Covenant under the Credit Agreement.
About the Debtors
The Debtors are an international remote communications and information technology (“IT”) services provider focused on delivering communications solutions through a multi-access technology, multi-band, and multi-orbit network of more than 80 satellites and interconnecting global terrestrial network, bolstered by extensive on-the-ground local support in more than 40 countries. The Debtors provide managed information services with differentiated technology offerings, including cybersecurity, crew welfare, content solutions, data and voice applications, Internet of Things (“IoT”) solutions and network systems integration services. The Debtors' primary customers are in the cruise, energy, government, and commercial maritime businesses.
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