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22 Jun 2005
MOODY'S ASSIGNS Caa2 TO ORBIMAGE HOLDINGS'S PROPOSED $240 MILLION SENIOR SECURED FLOATING RATE NOTE ISSUANCE; OUTLOOK STABLE
Approximately $240 Million of Debt Affected
New York, June 22, 2005 -- Moody's Investors Service ("Moody's") assigned a Caa2 rating to ORBIMAGE
Holdings Inc.'s ("ORBIMAGE" or the "company")
proposed $240 million (net proceeds) senior secured floating rate
note issuance. The company will use the note issuance proceeds
largely to finance the completion of its ORBVIEW-5 imaging satellite,
with the remainder to be used to retire existing debt and for general
corporate purposes. The ratings broadly reflect ORBIMAGE's
anticipated negative free cash flow going forward owing to the company's
investment in the ORBVIEW-5 satellite, a relatively short
post-Chapter 11 bankruptcy history, reliance on cancelable
U.S. government contracts, and the risk associated
with the launching and implementation of ORBVIEW-5.
Moody's assigned the following ratings to ORBIMAGE (ORBIMAGE Holdings
Inc. as the issuer):
Corporate family rating (formerly called the senior implied rating) --
Speculative grade liquidity rating -- SGL-3
$240 million senior secured floating rate notes due 2012 --
The outlook on all ratings is stable.
The Caa2 corporate family rating reflects negative projected free cash
flow owing to the company's ongoing investment in the ORBVIEW-5
satellite, a relatively short post-Chapter 11 bankruptcy
history, reliance on cancelable U.S. government contracts
(49% of revenues), some components of which cannot be confirmed
(i.e. milestones, due to confidentiality), and
the risk associated with the launching and implementation of OrbView-5
(scheduled for launch in early 2007) -- including delays and unforeseen
cost overruns. The ratings also reflect the company's near
term high leverage and inadequate interest coverage (over 6.0x
and under 1.0x, respectively, on a pro forma basis).
Moody's recognizes that under the NextView contract with the National
Geospatial-Intelligence Agency ("NGA"), the NGA
will support the ORBVIEW-5 project with a $237 million grant
-- subject to various milestones. However, given their
sensitive nature (i.e. from a security aspect), Moody's
is not privy to these milestones. Therefore, it is not possible
for Moody's to opine on the feasibility of achieving such milestones
or assess the probability that the company will receive all of the $237
million grant from the NGA.
Additionally, any failure with respect to ORBVIEW-5 (e.g.
launch, operational failure) could impair the company's business
plan. While the company could move some imaging tasks to its existing
ORBVIEW-3 satellite, ORBVIEW-3's imaging capacity
and resolution are less than those of ORBVIEW-5. Moody's
notes that should ORBVIEW-5 fail during launch or implementation,
or otherwise fail to perform as expected, high resolution satellite
imagery customers could potentially turn to competitors such as DigitalGlobe,
whose high-resolution WorldView satellite is scheduled for launch
The ratings also consider the company's strong position in the commercial
satellite imagery market, increased post-9/11 demand for
imagery intelligence, the U.S. government's
strong support of a domestic commercial satellite imagery industry,
longer-term contracts (typically three years), and given
its operating leverage, the potential for high margins once ORBVIEW-5
is operating. They also recognize that the value of ORBIMAGE's
ongoing business, which consists of two operating satellites,
will be secured to the bondholders and which Moody's estimates at
approximately $200 million.
The ratings also recognize recent equity contributions. Since November
2004, the company has attracted nearly $108 million in new
equity. In April 25, 2003, the U.S. government
instituted the U.S. Commercial Remote Sensing Policy (the
"Policy") wherein the government deemed that a strong,
well-supported satellite imagery industry provides significant
value. The Policy requires U.S. federal government
agencies to rely, to the maximum extent possible, on domestically-owned
commercial satellite imagery providers and to develop long term,
sustainable relationships with such providers. The government elected
to support two satellite imagery providers, ORBIMAGE and its competitor,
DigitalGlobe, through the NGA's NextView programs.
Such support is integral to the company's future success since 49%
of its revenues came directly from U.S. government agencies,
with significant portion of its non-U.S. government
business effectively subject to government approval.
The stable rating outlook considers the company's growth plans as
they relate to ORBVIEW-5, and Moody's belief that in
the post-9/11 world, that the demand for imaging intelligence
is not likely to decline. Additionally, given the capabilities
of the company's existing ORBVIEW-3 satellite and in light
of competitors' capabilities, if ORBVIEW-5 were to
fail substantially, a portion of customer demand could be met by
the company's existing capabilities until a replacement satellite
were ready for launch. Moody's would likely raise ORBIMAGE's
ratings once funding of ORBVIEW-5 is complete and launch date in
line with Moody's expectations is confirmed. Moody's
would likely lower ORBIMAGE's ratings if cash burn accelerates due
to operating shortfalls or the NGA stops funding ORBVIEW-5 construction.
The SGL-3 speculative grade liquidity rating reflects nominal operating
cash flow expected over the next four quarters and negative free cash
flow through 2006 owing to the completion and launch of the ORBVIEW-5
satellite. Subsequent to the senior secured note issuance,
the company would have effectively pre-funded its business plan.
Pro forma for the note issue proceeds, Moody's estimates that
ORBIMAGE will have approximately $227 million in cash, nearly
all of which is earmarked for the ORBVIEW-5 satellite construction
and the redemption of the $62.8 million senior subordinated
A first-priority lien on substantially all assets of the company
will secure the floating rate notes. Moody's notes that pro
forma at closing, the company will have no material assets other
than the capital stock of ORBIMAGE and an escrow account, which
will contain the net proceeds from the note issuance. Funds from
the escrow account will likely be partially released on or before July
7, 2005, in an amount sufficient to trigger mandatory redemption
of the existing $62.8 million senior subordinated notes.
At closing, the notes will not be guaranteed. ORBIMAGE Inc.,
the issuer's subsidiary, will be required to guarantee the
$240 million of floating rate notes as soon as it is no longer
prohibited from doing so by the senior subordinated note indenture (i.e.
subsequent to the aforementioned redemption of the senior subordinated
notes). Once the guarantee is in place, the remaining funds
will be released to the company from the escrow account.
Moody's does not notch the proposed senior secured floating rate notes
relative to the corporate family rating since the former comprises all
of the company's pro forma debt (subsequent to the redemption of
the senior subordinated notes). Also, because of the subsidiary
guarantee, the senior secured first-priority lien debt would
rank ahead of future second-priority lien debt or unsecured obligations.
Therefore, as a class, the first-priority lien senior
secured debt could be notched higher than the corporate family rating
if the company were to issue a material amount of second lien or unsecured
debt in the future.
ORBIMAGE, headquartered in Dulles, VA, is a global provider
of Earth imagery products and services. The company generated approximately
$31 million in revenue in 2004.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Corporate Finance Group
Moody's Investors Service
No Related Data.
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