TAMPA, Fla. — New accounting rules have thrown a wrench into a SPAC machine that has been catapulting space companies to the public markets.
Changing guidance from the U.S. Securities and Exchange Commission (SEC) are adding complexities, and delays, for SPACs (special-purpose acquisition companies) that merge with businesses after listing on the public market.
The changes laid out by the financial regulatory agency mean that warrants, which give investors the option to buy shares at specific prices in the future, need to be classified as liabilities instead of equity instruments in a company’s accounting books.
It is already prompting some space companies to redo paperwork, clogging up accountancy firms that are being overwhelmed by filings from other sectors.
There has also been a noticeable drop in new SPACs, sometimes called blank check companies, since the SEC unveiled the guidance April 12.
Only around 10 deals have been issued so far in April compared with more than 100 in March, according to news reports citing data from SPAC Research.
Uncertainty around the rules is also causing headaches for SPACs that have already merged with their target company, because the changes affect some more than others.
“Importantly, this is not specific to any one SPAC, but all SPACs,” said an official for launch company Rocket Lab, which is merging with the Vector Acquisition Corp. SPAC to help develop a medium-class vehicle.
“We are working with our auditors and advisors and will communicate any changes in due course, but we have nothing to update at this present juncture,” the Rocket Lab official said.
The possibility of delays also adds pressure on SPAC companies that have listed on a public market but are still hunting for a suitable acquisition.
SPACs have to find a deal within a certain period, usually two years, or return to shareholders the money they have raised through their public listing.
“We’re still assessing at this time,” said an official for New Vista Acquisition Corp., which has two years to find a target after listing on the Nasdaq stock exchange Feb. 19.
New Vista, led by former Boeing CEO Dennis Muilenburg, is concentrating its acquisition search on companies in space-based communications and defense, as well as advanced air mobility, transportation and logistics industries.
Space-focused blank check companies looking to list on the public markets include Space Acquisition I, which is co-led by venture capital firm E2MC founder Raphael Roettgen, and CEA Space Partners I Corp, led by former SES Americom CEO Edward Horowitz.
It is unclear what the potential for delays means for in-space transportation company Momentus, which is working on completing a merger with a SPAC called Stable Road Acquisition Corp.
Stable Road has until May 13 to finalize the deal, but is asking shareholders to approve a three-month extension as government reviews of the transaction drag on. A shareholder meeting has been scheduled for May 6 to vote on the extension.
Momentus did not respond to a request for comment.
A matter of perception
SPAC accounting rule changes to classify warrants as liabilities affect companies across all industries.
However, they could add more perceived risk for space ventures, which — with their usual wait times to generate significant revenues — are already seen as on the riskier end of the market, according to Micah Walter-Range, president and partner of consultancy firm Caelus Partners.
“Space companies are still viewed as incredibly risky and going public does not change that perception,” said Walter-Range, who created the underlying index for the Procure Space exchange-traded fund (ETF).
He said markets are still figuring out whether to perceive this accounting change as adding more risk to the long-term survival of space companies.
Others point to the long history of warrants being used in the financial markets, meaning they are understood by most investors regardless of how they are classified for accounting purposes.
However, more scrutiny for SPACs in general could help cool the once red-hot market even after there is clarity over what these accounting changes mean for businesses, impacting space companies that had been thinking about hopping on the bandwagon.
Space Force seeks bids for rocket engine testing and space transportation technologies
Projects will be co-funded by the government and contractors under “other transactions authority” agreements managed by the Space Enterprise Consortium
WASHINGTON — The U.S. Space Force on May 11 issued three requests for industry proposals on technologies that the military will need to reach space and to operate spacecraft in orbit.
The Space and Missile Systems Center’s Launch Enterprise is seeking proposals for next-generation rocket engine testing, launch vehicle upper stage enhancements, and capabilities to maneuver in space. Proposals are due June 10.
The projects will be co-funded by the government and the contractors under “other transaction authority” agreements managed by SMC’s Space Enterprise Consortium (SpEC).
“SMC intends to partner with industry to invest in next generation rocket engine testing, upper stage resiliency enhancements, and orbital transfer and maneuver capabilities,” Col. Rob Bongiovi, director of SMC’s Launch Enterprise, said May 11 in a statement.
Bongiovi said these projects will deliver technologies for the next phase of the National Security Space Launch program. The Space Force last year selected United Launch Alliance and SpaceX as its launch providers for the next five years under NSSL Phase 2. SMC wants to start pushing the development of next-generation space transportation technologies in preparation for Phase 3.
The plan is to “accelerate development of transformational space access capabilities and make them available for future NSSL procurement contracts,” Bongiovi said. “We are eager to work with SpEC to maximize acquisition flexibility and speed to award the next generation rocket engine testing and upper stage resiliency enhancements by September 2021 and the orbital transfer and maneuver capabilities in early 2022.”
Col. Tim Sejba, SMC’s program executive officer for space development, said these are the first of many projects that will be overseen by SpEC. “Over the next 12 months, we expect to release 11 projects with a cumulative value exceeding $1.5 billion,” said Sejba.
SpEC was created by the Air Force in 2017 to attract startups and commercial companies from the space industry to bid on military projects. More than 500 member companies compete for contracts to develop prototypes that are co-funded by the government and the contractors. Other transaction authority OTA) deals move faster than traditional government contracts and require established defense contractors to partner with startups ad commercial suppliers.
FAA rejects payload review for Momentus
WASHINGTON — The Federal Aviation Administration has denied a payload review for in-space transportation company Momentus, meaning the company will miss its second opportunity to launch its first tugs.
In a May 11 filing with the Securities and Exchange Commission, Momentus said it the FAA’s Office of Commercial Space Transportation notified the company May 10 that it had denied the company’s application for a payload review, part of the FAA’s launch licensing process. Momentus sought the review in order to be part of a SpaceX dedicated rideshare launch scheduled for June. Denials of payload reviews by the FAA are rare.
The FAA rejected the application “based on the FAA’s finding that its launch would jeopardize U.S. national security,” the company said in the filing. “According to the letter, during an interagency consultation, the FAA was informed that the launch of Momentus’ payload poses national security concerns associated with Momentus’ current corporate structure.”
Momentus had stated in earlier filings that the Defense Department had raised “national security and foreign ownership concerns” about the company during an interagency review that is part of the FAA payload approval process. That led to the FAA failing to grant an approval in time for the company’s Vigoride-1 tug to launch on SpaceX’s Transporter-1 rideshare mission that launched in January.
As recently as last week, company executives remained hopeful that the FAA would approve Vigoride-1 for launch in June, along with a second, larger tug, Vigoride-2. The tugs, which will deploy several cubesats after release from the Falcon 9, are ready for launch, Rob Schwarz, chief technology officer of Momentus, said in a May 4 webinar. “It’s ready to go and it will, assuming we get all our licenses,” he said.
Momentus has been working to address the national security concerns raised by the Defense Department, including agreeing to a voluntary review of the company by the Committee on Foreign Investment in the United States. Mikhail Kokorich, the Russian co-founder of the company, stepped down as chief executive in January, and he and Brainyspace LLC, a firm owned by co-founder Lev Khasis and his wife, agreed in March to divest their shares within three years.
The company noted in its SEC filing that the FAA’s rejection of its payload review application is not permanent. “The letter further states that the FAA understands that Momentus is undergoing a process that may resolve the national security concerns, and that the FAA can reconsider a payload application when that process has been completed,” it stated. However, it acknowledged that it will not be able to launch the first two Vigoride tugs in June.
The letter comes as a special-purpose acquisition company (SPAC), Stable Road Acquisition Corporation, is working to win shareholder approval for a three-month extension of the deadline to complete a deal with Momentus. The company needs 65% of shareholders to agree to extend that deadline from May 13 to Aug. 13.
Stable Road said in a May 10 press release that 62% of shareholders had voted in favor of the extension so far. If Stable Road does not hit the 65% threshold by the May 13 deadline, the deal to merge with Momentus will be off and the SPAC liquidated to its shareholders at $10.03 per share. Shares in Stable Road closed at $10.40 per share on the Nasdaq exchange May 11.
Eutelsat financials show why it bought part of OneWeb
TAMPA, Fla. — French satellite operator Eutelsat said revenue numbers will look much better than it expected come the end of June, despite reporting a decline in sales in its latest quarterly results.
The operator May 11 pointed to momentum behind fixed broadband, the only one of its verticals reporting an increase for the first three months of this year when compared to last year. By the time its current quarter fiscal year closes June 30, Eutelsat said, full-year revenue should come in higher than previously forecast.
Its plan to buy 24% of low Earth orbit (LEO) broadband startup OneWeb will further boost this part of its business, after the $550 million deal closes in the second half of 2021, underlining how important connectivity is becoming for a company that for the moment gets 62% of revenues from broadcast services.
Fixed broadband revenues increased 1.9% on a like-for-like basis to 20.5 million euros ($25 million) for the first three months of 2021, what it calls Q3 2020-21, compared with the corresponding period the year before.
The increase comes in spite of Eutelsat recently selling out of its part of Euro Broadband Infrastructure, a Europe-focused wholesale broadband services business, to its one-time U.S. partner Viasat. That deal closed April 30.
A wholesale contract with French telecoms giant Orange and growth in Eutelsat’s African operations lifted the fixed broadband unit.
Eutelsat said May 7 it will expand its partnership with Facebook in Africa, using more of the social media giant’s Express Wi-Fi platform to provide broadband services via satellite across several regions in the sub-Saharan part of the country.
The two companies have previously conducted Democratic Republic of Congo pilots of Express Wi-Fi, which gives service providers access to local communities and entrepreneurs to extend coverage.
Fixed broadband currently represents 7% of Eutelsat’s revenues, up from 6% in the first three months of 2020.
Mobile connectivity revenues, however, plummeted 17.2% year-on-year to 15.7 million euros for the first three months of 2021, representing 5% of total sales. Eutelsat said this reflects the impact of the COVID-19 crisis on sectors such as aero mobility. Maritime revenues remained on an upward trend thanks to contracts secured in the last couple of years, it added.
Broadcast revenues were down 6.8% year-on-year at 182 million euros for the quarter, driven by a slower pace of new business and the renegotiation of contract terms with Greece-based pay-TV company Forthnet.
Declines elsewhere helped pull Eutelsat’s total revenues for the quarter down 5.9% to 301 million euros, compared with the same period the year before.
However, the company raised the bottom end of its full-year guidance after the first nine months generated 930 million euros, compared with 959 million euros the previous year.
It raised it to between 1,200 million and 1,220 million euros, versus its previous forecast of between 1,190 million and 1,220 million euros.
The company also recorded a backlog of 4.5 billion euros, which is up 6% and represents 3.5 years of revenues.
“The outturn of our Third Quarter revenues performance is fully in line with our expectations and enables us once again to raise the bottom end of our objective range for the year as a whole, as well as to reconfirm all other elements of our financial guidance,” Eutelsat CEO Rodolphe Belmer said in a statement May 11.
“From a strategic perspective, recent weeks have been marked by our entry into the LEO space through our investment in OneWeb, which represents a compelling entry point to address the considerable LEO opportunity as well as an additional growth engine for the Group’s connectivity activities.”
Rocket Lab prepares to recover second booster at sea after May 15 launch
Rocket Lab CEO Peter Beck shared more details on the company’s next launch, which is set to take off from its New Zealand facility on May 15. The Electron vehicle will be carrying satellites from BlackSky, but delivering that payload is only half of the mission: the other half will be recovering the booster stage after an ocean splashdown.
This is the second of three planned booster recovery missions, part of Rocket Lab’s long-term plan to reach reusability for its launch vehicle, an achievement most famously held by its competitor SpaceX. The first recovery mission, dubbed “Return to Sender,” successfully splashed down in the Atlantic in November. While Beck told reporters Tuesday the condition of that booster “was remarkable,” this upcoming mission nevertheless features a number of component and system upgrades aimed at further fortifying the booster.
Most notably, the booster will be equipped with a redesigned heat shield made out of stainless steel, rather than aluminum, “designed to carry the reentry loads as well as the ascent loads,” Beck said. Electron must endure temperatures as high as 2400ºC during reentry, conditions the original equipment wasn’t intended to handle.
The company is also introducing what it’s calling the Ocean Recovery and Capture Apparatus, or ORCA, a dedicated system to help lift the rocket stage out of the water and onto the deck of a ship. Rough seas in November presented a challenge to the recovery effort, though ultimately the booster was not damaged.
The mission will also reuse components from the recovered booster, which (although the booster itself was dismantled) were subsequently inspected and requalified for flight. “From here on in, we should be able to reuse this system on every single launch vehicle that we’ve been bringing back,” Beck said.
Rocket Lab is pursuing a unique route to reusability. As opposed to the approach from SpaceX, whose Falcon 9 rockets use powered decelerations and landings, Rocket Lab’s approach with Electron is to decelerate the vehicle passively using the atmosphere and a parachute.
The reentry method is constrained by the size of the launch vehicle, Beck explained. “You don’t really have that ability to carry extra fuel to do maneuvers or deceleration burns or anything like that,” he said. Instead, the vehicle enters engines-first and propagates a massive shockwave on its journey back to Earth, carefully managed to reduce peak heat on its vulnerable parts. This results in a nearly negligible payload reduction: about 10%, as opposed to the 30-40% required for a propulsive landing. These are very tight margins, Beck acknowledged:
“This is not a simple thing to do. It sounds pretty basic – let’s just bring the stage back and put it under a parachute and splash down – but actually, doing it with no significant reentry elements and just using the atmosphere to do all the work is really challenging.”
The final splashdown recovery mission will take place before the end of 2021, Beck said, and will include improvements to the decelerator and a more general block upgrade. Once these missions are complete, Rocket Lab will turn to its ultimate goal: to do away with splashdown recovery altogether and to retrieve the booster mid-descent under its parachute using a helicopter.
Looking ahead, the company’s next rocket will be the Neutron, “a vehicle designed for reusability from day one,” Beck said. The Neutron will be much larger than its predecessor and capable of lifting heavier payloads to orbit. He estimated that Rocket Lab will construct one Neutron rocket per year and aim to operate a fleet of four to begin with.
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