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December 11, 2020 – The Court hearing the SpeedCast International Limited cases issued an order approving a proposed $16.3mn ($13.6mn cash and up to $2.7mn of collected receivables) private sale of the Debtors' Inmarsat reseller business back to to Inmarsat Solutions BV, Inmarsat Maritime Ventures Limited and Inmarsat Global Limited (collectively, “Inmarsat”) [Docket No. 1071]. The November 13, 2020 asset sale agreement (the “ASA”) memorializing the terms of the sale are attached as Exhibit A to the Debtors' requesting motion [Docket No. 950].
The Inmarsat ASA was negotiated after Speedcast decided to pull out of most of the Inmarsat reseller business "due to the unprofitability of the contractual arrangements with Inmarsat and the substantial capital investment that would be required to continue operating this business going forward" and after the Debtors were unable to find a third-party buyer. The Debtors acknowledge in their requesting motion that a third-party deal would have been next to impossible because Inmarsat was not likely to consent to a third party sale (see more on sale negotiations below).
The motion notes, “Over the course of these chapter 11 cases, the Debtors have been focused on restructuring the financial, and in some instances, operational, aspects of their businesses. In addition to securing new contracts and shedding others, the Debtors have considered, and are continuing to consider, opportunities to sell assets and operations as part of achieving their overall restructuring goals. In particular, certain of the Debtors and certain of their affiliates (collectively, the ‘Sellers’) have determined in their business judgment and subject to the approval of the United States Bankruptcy Court for the Southern District of Texas (the ‘Court’), to enter into that certain Asset Sale Agreement dated November 13, 2020 (attached hereto as Exhibit A) (including all exhibits and schedules attached thereto, the ‘Asset Sale Agreement’) which provides for, among other things, and as further described herein, the sale of certain assets and assignment of related customer contracts to Inmarsat Solutions BV, Inmarsat Maritime Ventures Limited and Inmarsat Global Limited (collectively, ‘Inmarsat’ and together with the Sellers, the ‘Parties’), transition services and the release of certain claims between the Parties (such transaction, the ‘Inmarsat Transaction’).
The Inmarsat Transaction will bring substantial benefits to the Debtors and their estates, including estimated potential cash proceeds of up to $13.6 million initially, up to an additional $2.7 million subject to collection of customer receivables and relief from certain contractual obligations and other liabilities not only to Inmarsat, but to hundreds of customers that otherwise would potentially have the ability to assert their own contract rejection claims against the Debtors. Accordingly, the Debtors submit that, in the exercise of their business judgment, the Inmarsat Transaction is in the best interest of their estates and this Motion should be granted.”
In respect of the Debtors' existing ties to Inmarsat, the motion notes, "The Sellers are currently engaged in reselling certain Inmarsat managed services to certain Speedcast customers in the commercial maritime business segment, including (i) Inmarsat Fleet Xpress ('SC FX Business') and (ii) Inmarsat Fleet Broadband services on a standalone basis without other satellite services ('SC Standalone FB Business' and, together with the SC FX Business, the 'Inmarsat Services'). Under various contractual arrangements, the Sellers pay Inmarsat for use of its global network to serve these commercial maritime customers, which are primarily comprised of freight shipping vessels, fishing vessels and yachts. The Sellers serve approximately 2,644 vessels with the Inmarsat Services, comprising approximately 36% of total revenue in the Commercial Maritime business vertical of Speedcast. In 2019, the Sellers generated from the resale of the Inmarsat Services approximately $41.3 million in revenue, and approximately $7.1 million of gross profit.
Following the Petition Date, Speedcast made a strategic decision to exit most of the Inmarsat reseller business due to the unprofitability of the contractual arrangements with Inmarsat and the substantial capital investment that would be required to continue operating this business going forward. Further, retaining the Inmarsat reselling business would likely impose a substantial burden on Speedcast over the next several years, with an estimated aggregate, undiscounted cashflow impact for the fiscal years 2020 – 2023 of approximately negative $53.0 million. The prospect for future profitability of the Inmarsat reseller business is speculative and contingent upon adding new customers and meeting certain minimum levels of customer renewals to avoid substantial penalties under existing contractual arrangements between the Sellers and Inmarsat. The Sellers do not anticipate such targets being met. Based on these factors, the Sellers entered into negotiations with Inmarsat regarding a potential sale of, among other things, the Inmarsat Services, including a transfer of the Assets (as defined in the Asset Sale Agreement) and a license of the SIGMA Platform…to Inmarsat.
The motion further provides, "Prior to commencing negotiating a term sheet with Inmarsat, the Sellers considered a sale to a third-party and were actively engaged with their professional advisors in soliciting the interest of several third-party purchasers. Ultimately, none of these third-parties submitted a transaction proposal. In June of 2020, following continued difficulties in meeting various performance targets in acquiring new customers for the Inmarsat Services, Inmarsat and the Sellers discussed various options regarding their go-forward relationship. The Sellers and Inmarsat discussed, among other things, (i) the termination of existing agreements ending the business relationship between the Sellers and Inmarsat, (ii) renegotiating existing agreements to make the relationship with Inmarsat more attractive for both parties and (iii) transferring the Debtor Seller’s customers to Inmarsat through a negotiated transaction. Notably, discussions with Inmarsat revealed that the Sellers would not easily have been able to sell the Inmarsat reseller business and related assets to a third party, in part because any such transaction would require the consent of Inmarsat.
Given the services being sold by the Inmarsat reseller business are supplied by Inmarsat, selling the business would need Inmarsat to agree to continue this supply relationship with any incoming third party purchaser. Inmarsat indicated that it would not likely be willing to put in place any new supply arrangements for such a third party purchaser. Furthermore, without agreed supply arrangements in place, Inmarsat indicated it would not likely provide any operational support for any such migration to a third party which would be needed to facilitate a smooth transition and retention of customers for the benefit of any incoming purchaser.
Ultimately, the Sellers determined that a sudden termination of the agreements between the Sellers and Inmarsat, especially given the significant revenue generated by this relationship, would create too much economic uncertainty and litigation risk associated with potential contract claims asserted between the parties. Further, the Debtors considered that a renegotiation of the various Inmarsat agreements was undesirable, especially in light of the lack of desire from the Sellers to continue strategic investment into 'non-core” business.' Accordingly, in the second half of June 2020, the Sellers began good faith negotiations with Inmarsat to produce a mutually beneficial sale of their Inmarsat reseller business to Inmarsat. These discussions continued through August, and a term sheet was agreed between Speedcast and Inmarsat on August 13, 2020. The Sellers and Inmarsat have continued to undertake confirmatory diligence and to negotiate and finalize transaction documentation since that time, ultimately resulting in the execution of the Asset Sale Agreement on November 13, 2020."
About the Debtors
The Debtors are an international remote communications and information technology (“IT”) services provider focused on delivering communications solutions through a multi-access technology, multi-band, and multi-orbit network of more than 80 satellites and interconnecting global terrestrial network, bolstered by extensive on-the-ground local support in more than 40 countries. The Debtors provide managed information services with differentiated technology offerings, including cybersecurity, crew welfare, content solutions, data and voice applications, Internet of Things (“IoT”) solutions and network systems integration services. The Debtors’ primary customers are in the cruise, energy, government, and commercial maritime businesses.
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