Fri 12/11/2020 16:05 PM
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UPDATE 1: 4:05 p.m. ET 12/11/2020: Judge Marvin Isgur entered an order today authorizing the Speedcast International debtors’ sale of their maritime customer managed services resale business to Inmarsat. No objections were filed in response to the sale motion, says the order. Consideration for the sale to Inmarsat would include a purchase price of approximately $13.6 million in cash, up to $2.7 million in receivables and a waiver of Inmarsat’s approximately $112.3 million of general unsecured claims. 

Original Story 6:41 a.m. UTC on Nov. 16, 2020

Speedcast Seeks Approval of Sale of Maritime Customer Business to Inmarsat for Up to $16.4M in Cash and Receivables, Waiver of Inmarsat’s Approximately $112.3M General Unsecured Claims

Relevant Documents:
Motion
Press Release

On Saturday, Nov. 14, the Speedcast International debtors filed a motion to approve the sale of their maritime customer managed services resale business to Inmarsat, resolving a potential hurdle to confirmation of the debtors’ proposed plan of reorganization. The debtors assert that “[w]ithout this agreement, Speedcast would have to terminate all of its distribution agreements with Inmarsat, jeopardizing this revenue stream and exposing it to numerous rejection claims from customers” as well as claims from Inmarsat. The debtors state in their conditionally approved DS that absent reaching this deal, the debtors would “expect[]” to treat Inmarsat’s prepetition, rejection and other damage claims as Class 4B other unsecured claims under the plan of reorganization, substantially diluting the recoveries to other members of the class and creating uncertainty regarding potential litigation risk.

Consideration for the sale to Inmarsat would include a purchase price of approximately $13.6 million in cash, up to $2.7 million in receivables and a waiver of Inmarsat’s general unsecured claims for approximately $112.3 million. According to the motion, the purchased assets would include the debtors’ GX system inventory, leased FX system inventory, customer contracts, certain receivables and relevant documentation and materials. The debtors would also transfer to Inmarsat the Inmarsat services, and Inmarsat would assume certain customer contracts and certain of the debtors’ liabilities. The debtors note in the motion that Inmarsat is “the uniquely situated natural party to acquire the assets” and state that as a result of the transaction, Inmarsat will continue to provide the debtor sellers with continuing services to approximately 600 vessels.

In addition, under the agreement, the sellers would grant a perpetual, worldwide, royalty-free license to Inmarsat to use the Sigma platform and the right to update, modify and maintain the source code and would provide transitional services and support to Inmarsat for six months post-closing. The agreement also includes certain limitations of liability provisions for the sellers’ benefit.

Schedule 1 of the asset sale agreement identifies the various debtor sellers and Inmarsat purchaser entities. According to Schedule 2, which identifies the allocation of consideration to the various debtors, 68% of the consideration provided by Inmarsat would be allocated to Speedcast Cyprus Ltd.

The debtors state that after their chapter 11 filing they made the “strategic decision” to exit most of the reseller business because of its unprofitability and because continuing to operate it would require substantial capital investment. The debtors estimate that over the next several years the business would have an estimated aggregate, undiscounted cash flow impact for the fiscal years 2020-2023 of approximately negative $53 million. The debtors further state that any prospect for future profitability is “speculative and contingent” and would depend upon meeting certain targets for new customers and customer renewals in order to avoid substantial penalties that the debtors do not anticipate would be met.

According to the motion, the debtors initially explored a third-party sale through its financial advisor Moelis but did not receive any offers and subsequently began negotiating with Inmarsat in the latter half of June. The debtors state that during the negotiations they learned that a third-party sale would not be easy because Inmarsat asserted that it would not be “likely” to continue the existing supply relationships with any third-party purchaser and to offer operational support for migration to a third party. The debtors also determined that renegotiating the agreements would be undesirable because of their “lack of desire” to continue strategic investment into “non-core” business; they also note that a sudden termination of the agreements would “create too much economic uncertainty and litigation risk.” A term sheet was executed on Aug. 13, after which the parties continued negotiations and confirmatory diligence, and the asset sale agreement was signed on Nov. 13.

The debtors state in the motion that the assumption and assignment of approximately 693 contracts to Inmarsat Maritime Ventures Ltd., a company incorporated under the laws of England and Wales, is a “key part” of the transaction and that the parties have agreed to “use reasonable efforts” to seek each customer’s agreement to a novation pursuant to the terms and conditions of an agreed form of novation agreement. The debtors also propose procedures for and deadlines to object to assumption and assignment. The motion states that the sellers will send a notice of contracts that may be assumed or assigned within two business days of Nov. 14 and that objections would be due 23 days after Nov. 14, or Dec. 7. The debtors filed the lists of the assumed and assigned contracts and of the transaction agreements, attached as Exhibit C and Exhibit D, respectively, to the motion, under seal, and the debtors have filed an accompanying sealing motion.

Pursuant to the asset sale agreement, the completion date of the sale would be the earlier of (i) Jan. 1, 2021 (if the bankruptcy court enters a sale order that becomes final on or after Dec. 1 through Dec. 11 and Inmarsat has provided the debtors will a notice confirming that they have received certain items and deliverables satisfactory to Inmarsat, and subject to satisfaction or waiver of certain conditions) or (ii) the first day of the second calendar month following the entry of such order.

The debtors filed the declaration of Tony Bates, CFO of Inmarsat Group Holdings Ltd., and the declaration of Elliott Etheridge-Yan, executive director of Moelis Australia, the debtors’ financial advisors, in support of the motion.
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