Tuesday, January 8, 2013

Orbcomm settles $45 million term loan financing with AIG

Orbcomm, a company that offers global asset monitoring and cellular data communications, has recently completed a five-year loan agreement with AIG Asset Management worth $45 million that could diminish concerns on whether it could finance the OG2 constellation.

The loan has a fixed interest rate of 9.5 percent, which is payable on a quarterly basis over the duration of the loan. The expanded capital will build on Orbcomm’s unfunded capital expenditure commitment in the principal amount of $33 million for its OG2 satellite constellation that the company could cover with expected money generation through 2014. With the new term loan of Orbcomm, the company decided to cut off its $20 million vendor financing agreement with Sierra Nevada that was originally secured as part of Orbcomm’s $117 million satellite manufacturing contract with the company, due to expire this year.

Raymond James Analyst Chris Quilty said that aside from funding capital expenditures, the loan should allow Orbcomm to fund the creation of new products and services, grow its distribution, expand geographically and pursue potential acquisitions.

“While not exactly in T-bill territory, the interest rate nonetheless appears appropriate given Orbcomm’s operational risk profile with two high-profile launches on the horizon and the absence of meaningful covenants,” Quilty said in a statement.

With AIG’s loan agreement, it enables Orbcomm to acquire additional financing through a revolving working capital facility with other lenders for up to $15 million in the form of inventory and accounts receivable borrowing based loans.

“We applaud Orbcomm management’s effort to shore up the balance sheet and increase financial flexibility,” added Quilty. “Orbcomm’s borrowing costs should decline substantially over time, but the company should have plenty of opportunities to refinance its debt as the company becomes operationally and financially self-sustaining and levers up the balance sheet to an appropriate leverage ratio over time.”

In other news, Orbcomm said that the company had collected a payout worth $10 million from its insurance agent as compensation for the company’s loss of OG2 prototype satellite during a failed launch attempt last October 2012 by SpaceX -- the same mission that sent the launcher’s Dragon capsule to the International Space Station. The company said that the insurance payout was anticipated.

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