Speedcast mulls recapitalisation plan from Open Gate Capital

Action surrounding the troubled remote communications and satellite services provider Speedcast appears to be heating up, with the company’s advisers understood to be mulling a recapitalisation proposal from the private equity firm Open Gate Capital.

The US-based buyout fund is believed to be offering $US350m for the business that once had a market value of more than $1bn.

Open Gate Capital was founded by former Platinum Equity executive Andrew Nikou and has companies across various sectors within its portfolio, including industrials, consumer, technology and business services. It targets the North American and European markets.

With offices in Los Angeles and Paris, it remains focused on the lower to middle market.

It has made opportunistic investments in the past, boasting on its website of the acquisition of the iconic US-based TV Guide magazine for $1.

Open Gate Capital has made opportunistic investments in the past.

Speedcast’s attraction is likely to be that more than half of its revenue is generated in North America.

The offer would see all of Speedcast’s debt holders largely paid, say some sources, but the challenge will be getting the disparate group to agree to a deal.

Speedcast has 25 lenders. As of December, they were owed $669m, but the group’s current debt position is unclear.

The company has been in negotiations with lenders since it entered Chapter 11 bankruptcy protection in April.

Activist hedge fund Black Diamond Capital Management, which has more than $US9bn of assets under management, is expected to oppose such a deal, favouring its own proposal to underwrite a recapitalisation and secure a major equity stake in the business.

Black Diamond, founded by former Bear Stearns banker Stephen Deckoff, is understood to hold close to 30 per cent of the debt stack, and other lenders are believed to be hesitant to offer any more funding.

It is no stranger to the Australian market, in 2016 threatening to block a recapitalisation for Emeco, of which it remains a shareholder.

Some Speedcast lenders are believed to be trading out of the debt, but not at a discount.

Lenders, mostly based in the US, have already offered Speedcast an additional $US90m.

Chapter 11 gives a company unable to pay its debts protection from trading while insolvent, but the creditors take control. It usually results in a company reorganisation and then a return to normal trade.

The big problem for Speedcast is that a large portion of earnings it generates from the cruise ship industry aren’t expected to return soon due to COVID-19 travel restrictions.

The alternative plan for Speedcast was selling non-core assets, but there were few buyers.

Raising equity was ruled out as an option for the company, which posted a $469m loss for 2019.

Speedcast’s lenders have provided $US600m from the term loan B market in the US.

When the company last traded, it was worth less than $200m, having been worth as much as $1.4bn in 2018.

Speedcast’s law firm Weil, Gotshal & Manges is based in New York.