Fri 08/12/2022 09:37 AM
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Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Agenda

















Summary
Masten Space Systems is a rocket and spacecraft company
Seeks to sell substantially all assets including a SpaceX launch credit
Requests $1.4 million in DIP financing from Astrobotic Technology Inc., which has also agreed to serve as stalking horse agreement for substantially all of the debtor’s assets

Masten Space Systems Inc., a Mojave, Calif.-based rocket and spacecraft company, filed for chapter 11 protection on Thursday, July 28 in the Bankruptcy Court for the District of Delaware, seeking to sell substantially all of its assets, including a SpaceX launch credit to fund the company through the sale process. The debtor has entered into a stalking horse agreement for substantially all assets with Astrobotic Technology Inc. for $4.5 million (plus a waiver of its claims and payment of cure costs for any assumed leases or contracts). The buyer has also agreed to provide $1.4 million in DIP financing. “Astrobotic would be permitted to credit bid its loan to the Debtor, including all fees and reimbursable expenses in connection with its loan, in connection with its stalking horse bid,” the debtor proposes. The DIP financing, Masten adds, will “allow the Debtor to continue its postpetition marketing and provide for the case to be properly administered and an expected distribution to unsecured creditors.”

As part of the contemplated sale, Astrobotic would purchase Masten’s SpaceX credit, and the debtor adds that it “intends to pursue acquisition opportunities for any remaining portions of its business.”

The first day hearing has been scheduled for today, Friday, Aug. 12 at 11:30 a.m. ET.

The company reports $10 million to $50 million in both assets and liabilities, with no funded secured debt. Masten has primarily funded operations from government and commercial contracts, along with financing from “a few key investors.” Between April and May 2006, Masten issued a total of 8.2 million shares of common stock in exchange for cash and certain assigned assets. In May 2007, Masten sold 375,000 total shares of Series A-1 preferred stock to Ian Kluft and Sean Lynch for a combined purchase price of $150,000, and from May 2007 to June 2009, Masten sold a total of 6.3 million shares of Series A preferred stock to Joel Scotkin, Ian Kluft and Sean Lynch for a combined purchase price of $1.2 million. In December 2011, Masten sold a total of 9.8 million shares of Series B preferred stock to Joel Scotkin for a total purchase price of $2.1 million.

The company is owned by 15 stockholders, including Joel Scotkin (51.67%), David Masten (18.65%) and Sean Mahoney (13.97%), with the remainder primarily consisting of founders, early-stage investors and employees who exercised their stock options, none of whom own more than 2.5% of the company. A list of equityholders is HERE. Masten has no subsidiaries or related entities.

The debtor is represented by Morris James in Wilmington, Del., as counsel and Gavin/Solomonese as financial advisor. The case has been assigned to Judge Brendan Linehan Shannon (case number 22-10657).

Events Leading to the Bankruptcy Filing

Masten attributes its bankruptcy filing to issues stemming from a proposal to launch a mission for NASA - titled “Masten Mission 1,” or MM1, for $75.9 million, pursuant to which it would land at the lunar south pole in December 2022. The company says that in February, NASA modified the contract to provide for a landing by January 2024. Masten says that it “was, and may continue to be, a successful company by every qualitative and quantitative measure,” but that issues with MM1 led to various costs stemming from the Covid-19 pandemic and supply chain problems. Masten notes a significant scale up in operations to handle the contract.

“Going to the Moon is expensive, and no commercial company has ever softly landed a spacecraft on the Moon,” Masten notes. “Indeed, NASA has not even soft landed a craft on the Moon since Apollo 17 in December 1972,” the founder adds, continuing that the MM1 mission required expenses “far greater” than any of Masten’s prior missions. Masten says that its contract did not include all costs because it was expecting to supplement with commercial payload sales that did not come to fruition.

Masten has spent approximately $40.5 million on procurement for hardware and services, $1.5 million on new facilities and facility upgrades and also has approximately $12 million in accounts payable and contractual commitments for MM1. Masten’s largest MM1-vendor related contract, however, was with SpaceX, which agreed to provide launch services on one of its launch vehicles. SpaceX terminated the launch contract on June 30 because of Masten’s failure to make timely payments.

In early 2021, Masten searched for new capital to cover the costs of MM1, and after struggles with the process internally, hired Stifel, Nicolaus & Co. as financial advisor and Skadden and Gunderson Dettmer as counsel in September 2021, seeking to raise $60 million through a Series C fundraising round. The process reached 235 prospective investors, of which 22 signed confidentiality agreements. Masten’s efforts stalled because of “market conditions and timing” and also because it “came on the heels of a special purpose acquisition company (‘SPAC’) trend in the space industry.” Masten says that between April and December 2021, nine space companies went public through SPAC mergers, and that private investment in space companies “broke records” in 2021, “but many investors interested in making substantial investments in space companies had already done so by the time Masten entered the market late in the year.”

The process ultimately resulted in Masten presenting to nine prospective investors, with additional investors meeting with Stifel separately, resulting in “significant interest” expressed by several investors, but Masten “was not able to secure a lead investor to lead the diligence process.” Masten entered into exclusive negotiations with an undisclosed company in March that ultimately fell through because of “excessive liabilities associated with an acquisition of Masten, in particular the vendor costs associated with MM1.” Subsequently, another undisclosed company expressed interest but also eventually declined to participate because of Masten’s “short timeline.” Masten also explored assigning MM1 and related subcontracts to another lander provider, but ultimately the company had concerns NASA would not approve a novation agreement.

In May, the company retained Gavin/Solmonese as financial advisor, which contacted over 800 parties, of which nine executed confidentiality agreements. On June 19, Masten received an indication of interest from one party and though it “did not provide Masten a feasible path forward,” the debtor says that conversations continue with this party.

In mid-June, SpaceX informed Masten that it intended to terminate the SpaceX launch agreement but would provide some form of consideration for the amounts paid to date if Masten purchased a new launch contract. SpaceX terminated the agreement on June 30, including an assignable credit that “could be applied to a new launch contract if assigned to certain parties within the CLPS vendor pool,” which “enabled Masten to potentially recoup some value from the SpaceX Launch Agreement, but Masten’s ability to market the SpaceX Credit was limited to a finite pool of potential purchasers.”

Ultimately, the debtor reached agreement with Astrobotic on DIP financing, and filed the case to “sell substantially all of the company’s assets, including the SpaceX launch credit, as a means of funding the company through the sale process.”

Background

Masten’s founder and chief technology officer, David Masten, filed a declaration in support of the first day papers. He says that he founded the company “to reduce the barriers to space by making rockets and spacecraft more cost efficient through reusability based upon the belief that rockets should operate more like airplanes than expendable ballistic missiles,” through “emphasizing reusable technologies, autonomous systems, and small operational teams.” The company is headquartered at the Mojave Air and Space Port in Mojave, Calif.

The debtor has three divisions - vertical takeoff and vertical landing rockets, research and development and lunar landers. The company has worked with NASA and DARPA, and its research and development has been funded by NASA, U.S. Air Force and National Science Foundation Small Business Innovation Research awards. Masten has one issued patent and six pending patent applications. Masten has identified licensing opportunities for several of these patented or patent-pending technologies, both within the space industry and in other industries. “Many of Masten’s R&D programs are developing critical technologies that will enable a sustained human and robotic presence on the Moon for NASA’s Artemis Program,” the first day declaration adds.

The debtors' largest unsecured creditors are listed below:










































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Space Exploration
Technologies Corp.
Hawthorne, Calif. Vendor $   4,621,875
Psionic, LLC Hampton, Va. Vendor 2,780,000
Astrobotic Technology Inc. Pittsburgh Vendor 2,724,568
NuSpace Long Beach, Calif. Vendor 1,694,738
Frontier Aerospace, Inc. Simi Valley, Calif. Vendor 1,168,259
Space Micro San Diego Vendor 951,019
Agile Space Durango, Colo. Vendor 770,000
Rock West Composites, Inc. San Diego Vendor 751,461
Marotta Controls Inc. Montville, N.J. Vendor 704,472
Airbus Defence and Space
Netherlands BV
Leiden, Netherlands Vendor 524,600

The case representatives are as follows:



































































Representatives
Role Name Firm Location
Debtor's Counsel Jeffrey R. Waxman Morris James Wilmington, Del.
Brya M. Keilson
Sarah M. Ennis
Astrobotic Technology,
as DIP Lender
Richard W. Riley Whiteford, Taylor
& Preston
Wilmington, Del.
David W. Gaffey Falls Church, Va.
Michael J. Roeschenthaler Pittsburgh
NASA Ruth A. Harvey U.S. Department
of Justice
Washington
Rodney A. Morris
Tiffiney F. Carney
Agile, as Prepetition
Secured Creditor
Scott D. Cousins Cousins Law Wilmington, Del.
Scott D. Jones
United States Trustee Hannah Mufson McCollum Office of the U.S.
Trustee
Wilmington, Del.

DIP Financing Motion

The company is seeking authority to obtain $1.4 million DIP financing from Astrobotic ($600,000 on an interim basis) and the use of cash collateral. The company says that the only creditor who holds an interest in the debtor’s cash collateral is Agile Space Industries Inc., which has asserted a security interest, but has agreed that its UCC financing statement would be deemed voluntarily withdrawn through the interim DIP order. Therefore, if the DIP financing is approved, Astrobotic as DIP lender would be the only secured party and has consented to the use of cash collateral.

The DIP financing bears interest at 12%, with 18% for the default rate, and matures on the earlier of 60 days after entry of the interim DIP order, 25 days after the petition date if a final DIP order has not been entered or other customary events.

The DIP funds may be used as working capital and for general corporate purposes, as well as to repay the DIP loans, pay interest, DIP fees and DIP lender expenses reimbursement.

The debtor laid off 22 employees on July 1 and also furloughed 56 employees, which it intends to bring back if the financing is approved.

To secure the DIP financing, the debtor proposes to grant liens on all of its assets, including the directors and officers insurance policy, claims and causes of action, subject to the final DIP order. The DIP collateral package would also include the proceeds of avoidance actions.

The DIP facility contemplates a $100,000 closing fee, a $75,000 initial commitment fee, a $75,000 final commitment fee and a $100,000 exit fee. Astrobotic would also be entitled to up to $100,000 in DIP lender expense reimbursement.

In support of the proposed DIP financing, the debtors filed the declaration of Edward Gavin of Gavin/Solmonese, the debtor’s proposed financial advisor. Gavin says that the agreement contemplates the sale for substantially all of the debtor’s assets while providing access to “significantly less expensive” DIP facility. Gavin notes that previously the debtor reached a tentative agreement with a potential lender for up to $1.1 million in DIP financing with an initial $600,000 to be funded on an interim basis, but it was subject to conditions including that the debtor enter into an asset purchase agreement for at least $4 million subject to approval of the lender. On Aug. 8, Masten entered into a “tentative” agreement with Astrobotic to assign to Astrobotic the debtor’s right to a $14 million credit from SpaceX through which SpaceX would provide a launch on a SpaceX vehicle to the assignee. However, the amount was insufficient for the potential DIP lender. Ultimately, Astrobotic agreed to be DIP lender and stalking horse.

In addition, the debtor proposes a waiver of the estate's right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b), subject to the final DIP order.

There is no carve-out or any challenge period.

The proposed budget for the use of the DIP facility is HERE.

The DIP financing is subject to the following milestones:

  • Aug. 12: Filing of bid procedures motion;

  • Aug. 15: Entry of interim DIP order;

  • Aug. 26: Entry of bid procedures order;

  • 25 days after entry of interim DIP order: Entry of final DIP order;

  • Sept. 2: Bid deadline;

  • Sept. 6: Auction;

  • Sept. 8: Sale hearing; and

  • Sept. 9: Sale closing.


Other Motions

The debtor also filed various standard first day motions, including the following:
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