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.
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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
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Gerald Granovsky
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
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John Diaz
MD - Corporate Finance
Corporate Finance Group
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Moody's downgrades GeoEye to B2; ratings remain on review for downgrade amid likely government cuts