10.31.11

What happened to LightSquared’s second satellite?

Posted in Financials, LightSquared, Operators, Regulatory, Spectrum at 9:18 am by timfarrar

Back in September I tried to analyze LightSquared’s cashflows, in order to predict when it might run out of money. A Debtwire article published in the FT earlier this month gives some useful data which has enabled me to refine that analysis. In particular, it states that after paying Sprint its $290M and raising $265M as an unsecured term loan, at the end of the second quarter of 2011 LightSquared had about $614M in cash.

That amount is very close to my estimate, with one exception, namely that it appears LightSquared did not repay Boeing’s vendor financing loan of ~$120M in December 2010. That loan was secured against the SkyTerra-2 (formerly MSV-2) satellite, which LightSquared told the FCC in October 2010 would be launched in the first half of 2011 (to meet the deadline in LightSquared’s Canadian license to place the satellite in orbit of April 23, 2011). Of course that didn’t happen, and I assume that LightSquared cancelled the launch to save money.

However, as I noted last December, Boeing’s contract to build the MEXSAT system involves the construction of two copies of the LightSquared satellite, and it would therefore make sense for Boeing to re-use the SkyTerra-2 satellite for its MEXSAT contract. It therefore seems that Boeing has either kept the vendor financing in place (under the assumption it will pick up the SkyTerra-2 satellite in bankruptcy) or has already reached some agreement with LightSquared to purchase the SkyTerra-2 satellite in exchange for forgiving the vendor financing loan. Either way, it seems that LightSquared’s creditors may now have one less asset to monetize in bankruptcy.

Taking this incremental $120M in cash into account, I have updated my financial projections, and these are given below. LightSquared has stated that it is funded through Q1 of 2012, and that it can “extend the runway of cash” if it has to. This appears to be a reference to deferring the next significant payment to Sprint, which I understand is due at the end of Q1. Sprint may or may not choose to extend the payment schedule with LightSquared, though Sprint’s actions would likely be dependent on what best positions it to retain the $290M already paid by LightSquared in a bankruptcy. However, as shown in the analysis below, even if no more payments are made to Sprint, LightSquared would still run out of money by the summer of 2012.

Interestingly the DebtWire article claims (incorrectly in my opinion) that LightSquared’s “liquidity is sufficient through 2012″ and more astonishingly that “current trading levels [for the first lien debt at 50 cents on the dollar] imply investors are taking a conservative approach and only valuing the more dependable 20 MHz, valued at USD 0.13-USD 0.14 megahertz per population (MHz/POP)”. Of course, this is far from a conservative approach when comparing the valuation with TerreStar and DBSD, because LightSquared must make lease payments of $115M per year to Inmarsat for access to the L-band spectrum, equivalent to an additional 30 to 40 cents per MHzPOP (depending on the appropriate discount rate), when attributed solely to the “more dependable 20 MHz”. Put another way, if LightSquared has to keep paying for the Inmarsat lease, and can only make use of 20MHz of its L-band spectrum (even if that were usable in the near term, which it will not be), then if DBSD and TerreStar were the appropriate benchmark (20 to 25 cents per MHzPOP) the LightSquared spectrum would be worthless.

2 Comments »

  1. TMF Associates MSS blog » Sprint’s fundraising efforts… said,

    November 4, 2011 at 1:04 pm

    [...] of LightSquared, this represents another $20M of expenditure over and above the amount assumed in my analysis earlier this week. More importantly, Sprint has set a precedent under which it will now presumably expect to be paid [...]

  2. TMF Associates MSS blog » LightSquared fading… said,

    January 5, 2012 at 4:49 pm

    [...] an aside, the Reuters article on LightSquared’s finances appears to broadly confirm my assessment that LightSquared is likely to run out of money by the second quarter of 2012. In view of the net [...]

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