Bankrupt in Bermuda, Desperate in Delaware

 

Remember ProtoStar? We do. They’re the company that launched a satellite into orbit about a year ago, and stationed it over East Asia. Bold move by the Bermuda-headquartered, San Francisco-based company (but incorporated in Delaware). They filed for the orbital slot through Singapore, hoping to get the satellite coordinated quickly. Launched another satellite only a couple of months ago. Looks like a good business to back with some venture capital.

Well, it was a good business (and might be again sometime in the future). They filed for bankruptcy yesterday:

Protostar filed for Chapter 11 bankruptcy protection Wednesday after lenders agreed to finance the company’s operations until it sells its satellites.

ProtoStar is suffering from a liquidity crunch after two customers decided to stop using one of its satellites – moves that forced the company to shut the operations of that satellite down and stop collecting revenue from it.

Investors including New Enterprise Associates, Redshift Ventures and VantagePoint Venture Partners have provided the company with more than $182 million in equity since 2004.

Chief Financial Officer Cynthia M. Pelini said in court documents that lenders demanded ProtoStar pay off its debt. However, the company was able to negotiate an arrangement under which the lenders would provide enough financing to keep the company’s operations going until it sells one or both of the satellites.

ProtoStar is now seeking permission from the U.S. Bankruptcy Court in Wilmington, Del., to borrow up to $16 million under a bankruptcy loan from a group of lenders led by Wells Fargo and use cash collateral securing claims from secured noteholders.

Protostar also is seeking permission to enter into a multiple draw term loan agreement with lenders led by Credit Suisse, Cayman Islands Branch.

Without the financing, ProtoStar said it wouldn’t have enough cash to fund its operations while it tries to sell its assets or cover expenses related to its bankruptcy case.

Separately, ProtoStar urged the bankruptcy court to issue an order spelling out the protections it’s entitled to now that it’s in Chapter 11.

ProtoStar, which has companies that operate in foreign jurisdictions such as Bermuda, Indonesia, Korea and Singapore, said creditors and counterparties to leases and other contracts “may not be well-versed” with the U.S. Bankruptcy Code. As a result, they may not be aware that they can’t seize ProtoStar assets located outside the U.S. or terminate agreements while the company is in bankruptcy.

ProtoStar has $528 million (book value) in assets and $463 million in debt, according to court papers.

Interesting. After trying to bulldog it’s way through frequency coordinations (generally a very civil discussion among engineers and regulators), using local offices for convenience and favorable tax jurisdictions to minimize what they owe to the U.S. government, the company is arguing for protection from the courts in Delaware. How you do business permeates your organization — and affects customer relationships.

Probably scared away some customers, too. Without paying customers, what good is your rocket science business?

If the satellites are for sale, we’ve got an opportunity for another operator to buy them.

 


Leave a Reply