April 29, 2020 – The Court hearing the OneWeb Global Limited cases approved the Debtors' proposed bidding procedures in relation to the sale of the Debtors’ assets (the “Sale”), including an auction/sale timetable culminating in an auction on July 2nd and a sale hearing on July 10th [Docket No. 104]. 

Those dates are not reassuring as to the Debtors' sales prospects, the auction calendar having already slipped three weeks from dates only recently proposed. It is hard, however, to read too much into the limited details we have to date, notwithstanding the constantly grinding rumor mill concerning potential interest (or lack thereof) in the Debtors' assets. One thing that is clear from the bidding procedures order, is that no stalking horse has been identified. 

At filing (March 28th, see more below), the Debtors' strategy as to potential asset sales was largely passive, to "wait-out the current instability of the financial markets as they respond to COVID-19 pandemic and to adequately market and monetize their assets." That strategy may need a rethink given the worsening prognosis for the coronavirus.The Debtors may not have to adhere religiously to their one-time (now abandoned) objective of adding 30 satellites a month to their orbitting collection of 74, but that collection is years and $billions away from contributing to a profitable business, if the assets are integrateable or relevant to the efforts of a purchaser at all. The 74 satellites are just a start on a "constellation" of 648 satellites and even that constellation is by the Debtors own admission "firstgen."

At some point soon, as launch pads and technology get grown over, time is going to become an issue.

One possible explanation for the now extended timetable, is the enormous diligence challenge around the Debtors' assets. The Debtors' have a hugely complicated, international business that will require enormous further capital outlay and a comprehensive understanding of a moveable feast of international regulation; all during the COVID-19 pandemic and the further logistical/regulatory/financial hurdles that it entails. For any interested party that is not already intimately familiar with the Debtors' low earth orbit ("LEO") satellite business (eg, former suitor Intelsat), the prospect of performing de novo diligence, and getting comfortable with a business case off the back of that diligence, would seem daunting.

The Debtor's bidding procedures motion/order also suggest possible bottlenecks in respect of any diligence efforts' the Debtors clearly wanting to limit access to their documents to genuinely interested parties and then only on a need to know basis. The bidding procedures read: "[a] Proposal must include a description of the due diligence the Prospective Bidder needs to conduct, including a list of any due diligence items it needs to review or confirm in order for it to enter into a definitive agreement" and continue: "The Debtors shall be entitled to (a) restrict the due diligence access of any Prospective Bidder that the Debtors determine (in their sole discretion) to be a competitor of the Debtors and (b) revoke due diligence access to any Prospective Bidder that fails to become a Qualified Bidder."

Further Background

[As previously reported] April 10, 2020 – The Debtors filed a motion requesting each of a bidding procedures order and a sales order. The bidding procedures order would approve bidding procedures in relation to the sale of the Debtors’ assets (the “Sale”), including bidder protections and an auction/sale timetable; and the sale order would authorize the Sale [Docket No. 57]. 

The Debtors' motion does not add much as to their prospects for finding a stalking horse bidder or add evidence of tangible results of what appears to be a continuation of "preliminary" prepetition marketing efforts. The lengthy proposed timetable, bids are not due for almost 8 weeks [now 11], however, suggests that efforts are not going particularly well; as do reports that the Debtors have turned to the UK Government for help. At filing, the Debtors suggested that their Chapter 11 strategy was largely passive, a plea to the not yet sufficiently satellite-cluttered heavens as they "wait-out the current instability of the financial markets as they respond to COVID-19 pandemic and to adequately market and monetize their assets."

Marketing Process

The motion states, “…the Debtors, with the assistance of their advisors, explored various strategic alternatives and ultimately determined that a sale or sales (the ‘Sale(s)’ (including pursuant to section 363 of the Bankruptcy Code or a chapter 11 plan of reorganization)) of some or all of the assets or equity interests of one or more of the Debtors (such assets and equity interests, collectively, the ‘Assets’) would maximize the value of their estates for the benefit of all stakeholders. Prior to the Petition Date, the Debtors, with the assistance of Guggenheim Securities, LLC (‘Guggenheim Securities’), engaged in preliminary discussions with certain interested parties regarding potential investments in the Debtors. Those efforts have continued subsequent to the Petition Date and the Debtors, with the assistance of Guggenheim Securities, have continued to market the Assets to potential buyers, including, without limitation, those approached prepetition, by (a) engaging potential buyers and investors and executing non-disclosure agreements, (b) delivering updated materials to such interested parties, (c) managing and providing access to a data room to interested parties, and (d) providing customized information packets to potential purchasers.

The Debtors believe that the proposed Bidding Procedures will enable them to expeditiously complete these Chapter 11 cases. In formulating the Bidding Procedures, the Debtors balanced the need to provide adequate notice to potential purchasers and other parties in interest with the Debtors’ limited liquidity, minimal amount of DIP financing, and the need to maximize value of their estates. The Debtors believe that the time periods proposed in the Bidding Procedures will provide all parties with sufficient time and information to formulate competitive bids for the Assets.”

Key Dates:

• Sale Objections Deadline: June 18, 2020
• Bid Deadline: June 26, 2020
• Auction: July 2, 2020
• Sale Hearing: July 10, 2020

Further Background

Objectives of the Chapter 11 Cases

Th Whayne Declaration (defined below) provides: "The Debtors have commenced these chapter 11 cases to provide them with the necessary breathing space to wait-out the current instability of the financial markets as they respond to COVID-19 pandemic and to adequately market and monetize their assets. The Debtors believe that conducting an open and competitive marketing process in the context of these chapter 11 cases, represents the best strategy to maximize value for their various stakeholders."

Significant Shareholders

• Softbank Group Corp.: 37.41%
• Qualcomm Global Trading Pte.: 15.93%
• 1110 Ventures, LLC: 11.94%
• Airbus Group Proj B.V,: 8.50%
• Vieco Nominees Limited: 7.39%
• Indian Continent Investment Limited: 5.14%

Prepetition Capital Structure

Equity

• In 2015, OneWeb raised approximately $500.0mn in equity financing primarily from strategic investors, including certain entities affiliated with Airbus Group, Inc., Hughes  Network  Systems,  LLC, EchoStar  Corp., Intelsat  Corporation, Qualcomm  Incorporated and Virgin Group Ltd. 
• In December 2016, OneWeb raised an additional $1.2bn consisting of a $1.0bn investment from SoftBank Group Corp. (“SoftBank”)  and a $200.0mn investment from certain of its existing investors.
• As of the Petition Date, OWG had 6,897,734 ordinary shares and 606,061 preferred shares outstanding.

Debt

• July 2018 Note Purchase Agreement: On July 12, 2018, the Debtors entered into a note purchase agreement (the “Original NPA”) with SoftBank, as administrative and collateral agent. Between July 2018 and January 2019, the Debtors issued notes to SoftBank under the Original NPA in an aggregate principal amount of $408.0mn.
• March 2019 Note Purchase Agreement and Senior Secured Financing: On March 18, 2019, the Debtors entered into an Amended and Restated Note Purchase Agreement (the “A&R NPA”) with Softbank, Banco Azteca, S.A., Institución de Banca Múltiple, Airbus Group Proj B.V., Qualcomm Technologies, Inc. and The Government of the Republic of Rwanda as the initial purchasers (the “Purchasers”), Global Loan Agency Services Limited, as administrative agent, and GLAS Trust Corporation Limited, as collateral agent. 

Between March 2019 and October 2019, the Debtors issued to the Purchasers 12.5% senior secured promissory notes in an aggregate principal amount of $1,560,621,949.30 (the “Senior  Secured  Financing”).  As of the Petition Date, there was approximately $1,733,121,855.82 (principal plus accrued interest) outstanding under the Senior Secured Financing.

Events Leading to the Chapter 11 Filing

"This latest funding round, our largest to date, makes OneWeb’s service inevitable and is a vote of confidence from our core investor base in our business model and the OneWeb value proposition." So said the Debtors' CEO just over a year ago when commenting on the completion of a further $1.25bn round of funding that brought OneWeb's total financing haul to $3.4bn. 

In a July 2019 interview with Bloomberg, Steckel continued to exude confidence in OneWeb’s ability to see off contenders in a space race against, amongst others, Elon Musk and the bottomless pockets of Jeff Bezos. “We’re going to have global coverage first, and then we’ll add more capacity to it." Promising to deliver satellites into orbit at a clip of 30 per month from Q4 2019, Steckel defended the venture’s economics as premised on OneWeb's ability to slash costs and manufacture satellites for about $1.0mn each. “But when you go to the next batch, it goes way below that, because we’ve amortized all the costs of the factory and whatnot,” said Steckel. “We will be able to broaden it and make it more affordable to everybody.”

So What Happened?

The Debtors make much of COVID-19 pandemic as the event that kicked shut the door to continued financing; with "anticipated funding opportunities…significantly and precipitously impacted by the COVID-19 pandemic and the resulting shuttering of the global economy." Indeed, it is undoubtedly COVID-19 that caused existing lenders and then potential bridge lenders to definitively turn their backs on the Debtors in Mid-March. Clearly, however, and notwithstanding the fairly fresh infusion of $1.25b in equity capital, the Debtors' liquidity issues preceded the arrival of COVID-19. The privately-held Debtors are not, however, effusive on the details as to how they ended up facing a "rapidly deteriorating liquidity position as the cost of building out the OneWeb System exhausted its existing equity and debt financing," with the story now essentially being: "We were always going to need more money, we had every reason to expect access to the capital markets…and COVID-19 has made that impossible." Cost over-runs; overly optimistic projections as to the number and timing of operational satellites; and management issues do not make it into OneWeb's mea culpa.

In a declaration in support of the Chapter 11 filing (the “Whayne Declaration”) [Docket No. 3], Thomas Whayne, the Debtors'  Chief Financial Officer, detailed the events leading to OneWeb’s Chapter 11 filing. the Whayne Declaration states: 

"OneWeb remains in the development stage of its business. Notably, the Company does not yet generate revenue. Historically, and throughout the various development stages of the OneWeb System, OneWeb has looked to its key equity and debt investors to provide liquidity for the next stage of its operations. Since 2019, OneWeb has been actively seeking investments from both its existing and new investors to fund its continuing operations and completion of the OneWeb System. In February 2020, OneWeb achieved its most momentous of development stages with the first launch of 34 satellites for its GEN-1 Constellation. Over the course of 2020, it was anticipated that OneWeb would continue with a monthly launch cadence to deploy the complete GEN 1 Constellation of 648 satellites. At that time, OneWeb had anticipated raising additional capital to meet its launch and constellation implementation schedule. However, OneWeb continued to face a rapidly deteriorating liquidity position as the cost of building out the OneWeb System exhausted its existing equity and debt financing. OneWeb engaged Guggenheim Securities, LLC (‘Guggenheim) in February 2020 to serve as its investment banker and assist the Debtors in their evaluation and pursuit of strategic opportunities. 

OneWeb had been hopeful to achieve an out of court solution to its deteriorating liquidity position. After several due diligence meetings during the first and second weeks of March 2020, the Company believed that it was going to be able to secure a long-term funding arrangement from existing shareholders. However, on March 12, 2020, as the markets began to feel the impact of COVID-19, OneWeb was notified that its current investors would not commit to a long term solution. On March 16, 2020, OneWeb entered into a term sheet for bridge financing to be consummated by March 26, 2020. On March 21, 2020, the Company was notified that the bridge financing offer was unavailable. Unfortunately, the anticipated funding opportunities OneWeb pursued were significantly and precipitously impacted by the COVID-19 pandemic and the resulting shuttering of the global economy. OneWeb, in an effort to preserve liquidity during these difficult social, political, and economic times, began shutting down nonessential aspects of its business in order to preserve the value of its existing assets.

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