Once a critical pillar in supporting commercial space projects around the world, export credit agencies have faded from the limelight in an industry awash with financing alternatives.
But as an Indonesian satellite obtains ECA support and Canada’s Telesat explores the option for its LEO constellation, there is still a role to play for these state-backed institutions.
ECAs came to the fore following the 2008-2009 financial crisis, helping space companies raise billions of dollars in financing as bank funding dried up and bond markets became problematic.
The American Ex-Im Bank, Export and Development Canada and the French company Bpifrance (formerly Coface) have become leading influencers in Western industry, supporting satellite projects that fuel companies in their country of origin.
It is the attractiveness of a financial package supported by Coface that finally pushed Iridium Communications to choose the European Thales Alenia Space rather than the American Lockheed Martin to build its $ 3 billion constellation, said Matt Desch, CEO of the satellite operator. News in an interview.
Desch said the $ 1.8 billion in long-term, relatively low-interest-rate ECA-backed debt she secured in 2010 was “absolutely critical” for the company at the time.
“It fits the profile of a big satellite mega-constellation perfectly,” he said.
However, ECA debt is also notoriously restrictive, limiting shareholder dividends and the types of projects a company can invest in.
As Iridium’s risk profile improved, credit markets also improved and in 2019 the company refinanced all of the ECA debt on better terms in the private market.
The prevalence of COAs elsewhere in the industry has also declined due to the greater availability of funding sources. Ex-Im being involved in a political struggle that closed its doors to big contracts from 2015 to 2019 did not help matters.
THE CASE OF ECA FUNDING
That could be about to change as the pandemic underlines the value of the space industry and activity ramps up across the sector.
The UK plans to leverage its UKEF export credit agency to help grow the country’s share in the global space industry after Brexit.
“There has been a sharp increase in demand for our support across a range of UK export sectors this year, as we have significantly expanded access to our support,” a UKKEF spokesperson said.
“We are seeing strong demand in the broader aerospace sector and have already committed £ 8 billion for UK airlines affected by the pandemic. “
Britain’s space exports hit £ 5.5 billion in 2019, the country’s government said earlier this year. More than a third of the sector’s income comes from exports.
The degree of UKEF’s involvement in the space market will depend on demand and the level of support the industry receives from the private sector, the spokesperson added.
Despite the proliferation of other commercial sources of funding, such as venture capitalists and, more recently, Special Purpose Acquisition Companies (SPACs), Ex-Im expects space companies to continue to look to ECAs to fill funding gaps left open by commercial banks. .
A spokesperson for Ex-Im highlighted the extent of funding that will be required for large constellation projects in the future, as well as the need for more non-dilutive sources of capital at later stages of the life cycle of these projects.
“EXIM has experienced delays related to the pandemic in the development of space transactions which are currently under consideration,” the spokesperson said.
“However, demand for EXIM support has been robust. Over the past two years and during the pandemic, EXIM has seen a significant increase in requests for funding from various other commercial applications such as Earth observation and remote sensing, space tourism, maintenance of orbiting spacecraft. and the weak or medium constellations of satellites in Earth orbit.
There is also a geopolitical element at play, the spokesperson adding that “when a competitor of an American company receives funding sponsored by the ECA or the state, EXIM is able to provide competitive funding. to level the playing field for the American exporter. “
Indonesia is the latest country to appeal for ECA support for a space project. His government recently obtained funding of $ 545 million that Bpifrance is supporting in part for SATRIA, the high-speed satellite that Thales Alenia Space is building. The satellite is part of a public-private partnership with the established national satellite operator Pasifik Satelit Nusantara (PSN).
More deals are brewing under the radar, according to a source who advises companies on debt, who said ECAs are still a good option for companies that don’t have the right credit fundamentals to rely on. Direct commercial loans, bonds or the frenzy of activity in the public markets fueled by the PSPC.
“I am working with at least two new companies that are considering ECA financing as one of their financing options,” the person added.
However, ECA financing remains debt, which is much more conservative than equity when it comes to risk. The shadow of the failure of ECA-backed Newsat in Australia six years ago also hangs over the market.
The best source of funding largely depends on the risk profile of the satellite project, according to Euroconsult analyst Nathan de Ruiter.
“The changing market environment, from broadcast to broadband applications and associated shorter-term contracts, makes it more difficult for satellite operators to secure a large pre-launch backlog,” a- he declared.
“ECAs generally place great importance on pre-launch commitments to limit exposure to market risk.”
According to the Indonesian agreement, the “government of the country is the buyer, which entails little or no market risk”.
Telesat, 51, is also a good fit for ECA because of the existing cash flow it generates in other parts of the business, where there are proven business models.
MORE RISKS IN SPACE
The space industry as a whole, however, is moving away from the proven models of the past as it carves out new markets in an increasingly digital world.
Telesat and the Indonesian project pose little risk to repay their loans compared to many companies that now dominate the industry, according to Desch.
“Right now… our industry is generally in a big start-up fashion, with a lot of new ideas, with a lot of new companies,” he said.
These companies help fuel a growing appetite for risk in the stock markets, which flock to the sector as low interest rates make other types of investment less attractive.
There’s a lot of money researching the kinds of returns these space companies promise as they seek to transform markets with new technology, Desch noted.
“The problem is, there is also a very, very high risk, and I don’t think … that a lot of the companies that we are seeing now are candidates for export credit financing,” he said. -he declares.
He added: “This is the time for fairness and it is a good thing because fairness is looking for places to put its money.”
It remains to be seen how long this environment will last, as venture capital is also playing an increasingly important role in an industry that seeks to disrupt the state of play.
Armand Musey, founder of consultancy firm Summit Ridge Group, said: “As technological change accelerates in the space industry, long-term take-or-pay customer contracts are likely to become rarer.
“If this is the case, it will become more difficult for ECAs to familiarize themselves with the commercial risk associated with the financing of many space projects. In the absence of rock-solid contracts or government support, the space industry is likely to rely more on other sources of capital. “
For Ex-Im, he believes that ECAs will continue to be an important part of the industry funding mix because, mainly through an agreement with the Intergovernmental Organization for Economic Co-operation and Development (OECD), they have the the ability to provide a scale of patient capital at times longer than the commercial banking industry is able, or willing, to provide on its own.
“The arrival of non-OECD ECAs offering aggressive financing for their local space industry exports has only underscored the critical role EXIM plays in supporting the US commercial space sector,” said the spokesperson for Ex-Im.
This article originally appeared in the March 15, 2021 issue of SpaceNews magazine.