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Related Issuers
Rating Action:

Moody's downgrades GeoEye to B2; ratings remain on review for downgrade amid likely government cuts

25 Jun 2012

New York, June 25, 2012 -- Moody's Investors Service downgraded GeoEye Inc.'s ("GeoEye") corporate family rating ("CFR") and the probability of default rating ("PDR"), each to B2 from B1, following the company's announcement that the National Geospatial-Intelligence Agency ("NGA") is seeking to amend the terms of the Service Level Agreement ("SLA") with the company. In addition, Moody's maintains the ratings on review for downgrade, given the uncertainty over the future contractual status with the US government.

As part of the rating action, Moody's downgraded the instrument ratings on the company's 8.625% Senior Secured 2nd Lien Notes due 2016 to Caa1 (LGD5-88%) from B3 (LGD5-89%) and on the 9.625% Senior Secured Notes due 2015 to B1 (LGD3-37%) from Ba3 (LGD3-38%).

In addition, due to the uncertainty of the appropriations, Moody's downgraded the company's liquidity rating to SGL-4 from SGL-3, indicating weak liquidity as the company's may use a significant portion of its cash over the next 12 months to continue the construction of GeoEye-2. As the company does not have an external credit facility, in Moody's opinion, amid questions surrounding the continuing support from the US government, it may need to cut operating expenses to continue the construction of GeoEye-2 according to the original timeline. Moody's also notes that the company was able to stretch the deployment schedule of GeoEye-1 satellite when it faced liquidity issues in the past.

Issuer: GeoEye Inc.

..Downgrades:

.... Probability of Default Rating, Downgraded to B2 from B1; Placed Under Review for further Possible Downgrade

.... Speculative Grade Liquidity Rating, Downgraded to SGL-4 from SGL-3

.... Corporate Family Rating, Downgraded to B2 from B1; Placed Under Review for further Possible Downgrade

....US$400M 9.625% Senior Secured Regular Bond/Debenture, Downgraded to B1 (LGD3, 37%) from Ba3 (LGD3, 38%); Placed Under Review for further Possible Downgrade

....US$125M 8.625% Senior Secured Regular Bond/Debenture, Downgraded to Caa1(LGD5, 88%) from B3 (LGD5, 89%); Placed Under Review for further Possible Downgrade

..Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

The B2 CFR reflects the recalibration of the company's credit risk profile in light of possible material cutbacks to the contractual relationship between GeoEye and NGA. As GeoEye in aggregate, receives over 65% of its revenues from the US Government, replacing that revenue stream with other customers may stress the financial profile in the interim. The rating review will focus on the company's construction and deployment plans of GeoEye-2 in the face of reduced support from the US government, its ability to diversify its revenue stream away from the US government, and if needed, ability to obtain external financing to complete GeoEye-2.

The NGA alerted the company that it is unlikely to extend the SLA for the next contract year starting September 1, 2012 through August 31, 2013, but instead proposes a three month option which the NGA intends to exercise providing for service revenue to the company from September 1, 2012 through November 30, 2012 of $39.75 million, and a further nine month option for the remainder of the Contract Year through August 31, 2013 providing for service revenue to the Company, based upon the availability of funding, of $119.25. More importantly, The NGA is electing not to obligate additional funding under its cost share agreement with the company for the development and launch of GeoEye- 2, scheduled for launch in the first half of 2013. NGA is proposing new milestones for payment of the remaining $70 million, three of which would occur before the launch of GeoEye-2, and no additional cost share funding would be provided. In Moody's view, a material curtailment in support from NGA for the ongoing construction of GeoEye-2 will force the company to cut expenses or to slow down the construction of GeoEye-2.

In August, 2010, GeoEye received a $2.8 billion NGA award in a series of ten one-year contracts, which includes an SLA for $150 million per year for satellite imagery, increasing by $183 million to $333.4 million per year when the company's GeoEye-2 satellite is expected to become operational in the second half of 2013. NGA had also agreed provide $337 million in cost share payments towards the build and launch of GeoEye-2. As per most recent communication to the company, NGA is looking to cut back the cost share payments to a total of $181 million, The company expects to receive the first cost-share installment of $111 million by early July 2012.

What Could Change the Rating - Up

Upward rating momentum will occur if the US budget deliberations result in the confirmation of the expected revenue streams and at minimum $181 million in cost share reimbursement for GeoEye-2, which carries the company over to a successful launch and deployment of the new satellite. Additionally, ratings may be raised if the company diversifies its revenue stream away from the US government, and the resulting cash flow augments the company's liquidity.

What Could Change the Rating - Down

The rating downgrades would be driven by unfavorable DoD budget outcome which would significantly curtail US government revenues, and if the company is unable to replenish those revenues from other customers. Given the high technology risk endemic in the company's business model, ratings would come under pressure if there is a significant impairment of assets in space that is not covered by insurance.

The principal methodology used in rating GeoEye Inc. was the Global Aerospace and Defense Industry Methodology published in June 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Dulles, VA, GeoEye, Inc. (GeoEye) is a commercial satellite company (formed as a result of ORBIMAGE's January, 2006 acquisition of Space Imaging) operating two earth imaging satellites - GeoEye-1 and IKONOS. The company also owns and operates a network of ground stations and provides aerial imagery services. The company has an extensive archive of satellite imagery, and has advanced geospatial imagery processing capabilities. GeoEye is one of two US based companies (along with DigitalGlobe Inc) operating in this industry, and the larger of the two by revenues.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Gerald Granovsky
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades GeoEye to B2; ratings remain on review for downgrade amid likely government cuts
No Related Data.
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