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Global Credit Research - 18 Aug 2010
New York, August 18, 2010 -- Moody's Investors Service ("Moody's") downgraded DigitalGlobe, Inc.'s
("DigitalGlobe" or the "company") Speculative Grade Liquidity rating to
SGL- 3 from SGL-1, indicating adequate liquidity.
The action reflects Moody's concern that the accelerated timeline of constructing
the next generation imaging satellite, WorldView-3,
will weaken the company's liquidity over the next 12 to 18 months.
As part of the ratings action, Moody's affirmed all other ratings,
including the Ba3 corporate family rating ("CFR"), the Ba3 probability
of default rating ("PDR") and the Ba3 rating on the senior secured notes.
The outlook remains stable.
On August 9, 2010 DigitalGlobe announced that the National Geospatial-Intelligence
Agency (NGA) had awarded the company a new contract for satellite imagery
and related services. In Moody's view, the company's ratings
are not impacted at this time, as the greater future revenue certainty
provided by the contract is neutralized by the capital spending the company
is undertaking to build the WorldView-3 imaging satellite over
the next four years in order to fulfill its service obligations under
However, given the highly complex technology involved in the construction
of the imaging satellite in addition to the uncertainties facing the satellite
launch industry, cost overruns are an endemic risk overhanging the
rating. Consequently, based on Moody's estimates of
internally generated funds by the company over the next 12 to 15 months
compared to the projected capital spending on the new satellite,
the company's liquidity may become stressed towards the end of 2011.
The company's available liquidity is comprised primarily of about
$143 million of cash on hand at 6/30/10. Moody's projects
that the company will run a $100 million to $120 million
free cash flow deficit over the next year. Moody's recognizes
that the company's $625 million cost estimate for the construction
of the satellite, the related ground station equipment and launch
fees are likely at the upper end of cost projections, given the
company's history in deploying similar WorldView-1 and WorldView-2
satellites in the last three years. The company may also enhance
its liquidity through more rapid growth of services to customers outside
the US government. However, in Moody's view the liquidity
cushion provided by the company's cash balance, without the
benefit of a backup revolving credit facility or other sources of readily
available liquidity, is in line with an adequate liquidity assessment.
DigitalGlobe's Ba3 CFR primarily reflects the company's leading position
in a relatively nascent market for satellite imagery, and in Moody's
opinion the strong support for the commercial satellite imagery industry
by the US government. The Ba3 rating also derives support from
the company's strong near-term financial metrics, primarily
expectations for adjusted Debt/EBITDA leverage below the 2x range,
offset by expected negative free cash flow generation as the company ramps
up capital expenditures towards the completion and launch of its next-generation
WorldView-3 satellite, expected to be deployed in the 2013-2014
time frame. The ratings are tempered by the technology and business
risks manifest in the company's high customer and asset concentration
and the longer-term uncertainty relating to the company's strategy
to meet shareholder return expectations.
The NGA award under the EnhancedView program consists of $2.8
billion over 10 years for satellite imagery collected on the company's
existing satellites along with revenue commitments on imagery collected
from future satellites. The contract also provides for $750
million of ancillary services and infrastructure enhancements that DigitalGlobe
will provide to NGA over the ten year period. In Moody's view the
contract award is the continuation of a demonstrated history of support
for the commercial satellite imagery industry by the US government.
Moody's most recent rating action on DigitalGlobe was on April 15,
2010, at which time Moody's upgraded the company's liquidity rating
to SGL-1 from SGL-2.
DigitalGlobe's ratings were assigned by evaluating factors we believe
are relevant to the credit profile of the issuer, such as i) the
business risk and competitive position of the company versus others within
its industry, ii) the capital structure and financial risk of the
company, iii) the projected performance of the company over the
near to intermediate term, and iv) management's track record and
tolerance for risk. These attributes were compared against other
issuers both within and outside of DigitalGlobe's core industry and DigitalGlobe's
ratings are believed to be comparable to those of other issuers of similar
Please refer to www.moodys.com for additional research and
Headquartered in Longmont, CO, DigitalGlobe is a commercial
satellite imagery company which operates a constellation of three Earth
imaging satellites -- WorldView-1, WorldView-2
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades DigitalGlobe's liquidity rating to SGL-3
250 Greenwich Street
New York, NY 10007
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