WATT, TIEDER, HOFFAR & FITZGERALD, LLP Jennifer
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Case 20-32299-KLP Doc 2247 Filed 05/24/21 Entered 05/24/21 17:44:23 Desc Main Document Page 1 of 19 WATT, TIEDER, HOFFAR & WHITE AND WILLIAMS LLP FITZGERALD, L.L.P. Heidi J. Sorvino, Esq. (pro hac vice pending) Jennifer Larkin Kneeland (VSB 71187) James C. Vandermark, Esq. (pro hac vice pending) Marguerite Lee DeVoll (VSB 93474) 7 Times Square, Suite 2900 1765 Greensboro Station Place New York, NY 10036 Suite 1000 (212) 244-9500 McLean, Virginia 22102 [email protected] [email protected] [email protected] [email protected] IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: Chapter 11 INTELSAT, S.A. et al.,1 Case No. 20-32299 (KLP) Debtor. (Jointly Administered) OBJECTION AND RESERVATION OF RIGHTS OF SPACE-COMMUNICATION LTD. WITH RESPECT TO NOTICE OF REJECTION OF CERTAIN EXECUTORY CONTRACTS AND/OR UNEXPIRED LEASES Space-Communication Ltd. (“Spacecom”) hereby files this objection (the “Objection”) in response to the Notice of Rejection of Certain Executory Contracts and/or Unexpired Leases [ECF No. 2160] (the “Rejection Notice”) filed by the debtors in the above captioned chapter 11 proceedings (the “Debtors”) seeking to reject certain agreements between Spacecom and Intelsat Satellite LLC (“Intelsat”). In support of this Objection, Spacecom submits the Declaration of Ariel Perets (the “Perets Declaration”) and states as follows: 1 Due to the large number of Debtors in these chapter 11 cases, for which joint administration has been granted, a complete list of the Debtor entities and the last four digits of their federal tax identification numbers is not provided herein. A complete list may be obtained on the website of the Debtors’ claims and noticing agent at https://cases.stretto.com/intelsat. Case 20-32299-KLP Doc 2247 Filed 05/24/21 Entered 05/24/21 17:44:23 Desc Main Document Page 2 of 19 PRELIMINARY STATEMENT 1. Intelsat and Spacecom entered into the Spacecom Agreements (as defined below) to coordinate the use of certain satellite frequencies. The continuation of the terms of these agreements is critical to the success of both parties and Intelsat should not be permitted to reject them in these chapter 11 proceedings. 2. Moreover, the Debtors’ attempt at rejecting these agreements must fail because: a. the Satellite Network Agreement (as defined below) is not executory and thus, not subject to rejection; b. the Debtors cannot show that the rejection of the Spacecom Agreements meets the public interest standard, which is applicable due to the significant government interests involved, including those of the State of Israel and the International Telecommunications Union (the “ITU”) as set forth in the letter dated May 23, 2021, from Mr. Nati Schubert, on behalf of the State of Israel’s Ministry of Communications, to Jessica Rosenworcel, Acting Chairwoman of the Federal Communications Commission (the “FCC Letter”); c. the Debtors also cannot show that the rejection of the Spacecom Agreements meets the business judgment standard because they have not shown any benefit to the general unsecured creditors in this case, plus the benefit to the Debtors of rejecting the Spacecom Agreements, if any, is minor compared to the devastation to Spacecom and third parties; and d. even if the Spacecom Agreements are rejected they are not terminated, so Spacecom is entitled to the ongoing exclusive use of Group A Frequencies (as defined below) and Intelsat will still be obligated to pay the Coordination Fee -2- Case 20-32299-KLP Doc 2247 Filed 05/24/21 Entered 05/24/21 17:44:23 Desc Main Document Page 3 of 19 (as defined below) for the benefits conveyed on Intelsat for use of Group B Frequencies (as defined below) after January 1, 2021. FACTUAL BACKGROUND The Parties 3. As set forth in the Declaration of David Tolley, Executive Vice President, Chief Financial Officer, and Co-Chief Restructuring Officer of Intelsat S.A. in Support of Chapter 11 Petitions and First Day Motions [ECF No. 6] (the “Tolley Declaration”), the Debtors “operate[] the world’s largest satellite fleet and connectivity infrastructure, and provide[] diversified communications services to many of the world’s leading media companies, telecommunications operators, Internet service providers, and the U.S. government and military.” Tolley Declaration, ¶ 5. 4. Spacecom is a global fixed satellite operator and satellite service provider, offering tailored end-to-end communication solutions to the media and broadband industries. Spacecom’s partners include, a variety of leading broadcasters, satellite service providers, government agencies, and other communications businesses throughout Europe, the Middle East, Asia and Africa. Perets Declaration, ¶ 3. Agreements Between the Parties 5. On August 31, 2013, Spacecom launched a new satellite known as AMOS-4, which established an orbital position at 65ºE and began its commercial operation in such position during December 2013. Perets Declaration, ¶ 4. This enabled Spacecom to provide a full range of satellite services in Asia, the Middle East, and Africa, including extensive broadcast and broadband services into both the urban and rural areas of these regions. Perets Declaration, ¶ 4. It is expected -3- Case 20-32299-KLP Doc 2247 Filed 05/24/21 Entered 05/24/21 17:44:23 Desc Main Document Page 4 of 19 the AMOS-4 will have a useful life expectancy of approximately fifteen (15) years. Perets Declaration, ¶ 4. 6. Spacecom and Intelsat entered into that certain Coordination Agreement dated June 6, 2013 (the “Coordination Agreement”) to establish mutually acceptable conditions for the simultaneous operations of Spacecom networks at the orbital location of 65ºE and Intelsat networks at the orbital locations of 62ºE, 64ºE, 66ºE, and 68.5ºE. Perets Declaration, ¶ 5. The Coordination Agreement, inter alia, effectively provides each party with the exclusive use of certain frequencies in certain geographical areas, in which the other party originally had rights, as follows: #Band Frequency Associated Party with Use Party with Use Range Geographical Rights Before Rights Under the Area Coordination Coordination Agreement Agreement 1 10.95-11.075 H- South East Asia Intelsat Spacecom pol 2 12.6635-12.75 V- Russian beam Intelsat Spacecom pol 3 13.75-13.8835 Middle East/ Spacecom Intelsat H/V-pol Europe beam, Russian beam 4 13.8835-14.0 V- South African Spacecom Intelsat pol region 5 14.0-14.125 H/V- South East Asia Intelsat Spacecom pol Perets Declaration, ¶ 5. 7. Spacecom and Intelsat also entered into a Satellite Network Agreement also dated June 6, 2013 (the “Satellite Network Agreement” or “SNA” and with the Coordination Agreement, collectively, the “Spacecom Agreements”) to supplement the Coordination Agreement with certain additional commercial terms that Intelsat’s obligation to pay Spacecom a coordination fee of US$650,000 per calendar year (the “Coordination Fee”) as additional -4- Case 20-32299-KLP Doc 2247 Filed 05/24/21 Entered 05/24/21 17:44:23 Desc Main Document Page 5 of 19 consideration for the transfer to Intelsat of the rights to use those certain frequencies as more specifically set forth in the Spacecom Agreements (i.e. 13.75-13.8835 H/V-pol, and 13.8835-14.0 V-pol, collectively, “Group B Frequencies”). Perets Declaration, ¶ 6. The payment of the Coordination Fee is the only obligation remaining under the Satellite Network Agreement, which continues through the later to occur of (i) the 15th anniversary of the start of the commercial operations of AMOS-4 (i.e., the end of 2028) or (ii) the cessation of station-kept operations of AMOS-4 at the nominal orbital location of 65ºE. Perets Declaration, ¶ 6. 8. Based on Spacecom’s exclusive rights to use certain frequencies of Intelsat at certain geographical areas as set forth in the Spacecom Agreements (i.e. 10.95-11.075 H-pol, 12.6635-12.75 V-pol, and 14.0-14.125 H/V-pol (collectively, “Group A Frequencies”)), Spacecom entered into subsequent agreements with third parties (the “Third Party Agreements”). Perets Declaration, ¶ 7. The Third Party Agreements provided certain third parties with the right to use Group A Frequencies through the useful life of AMOS-4. Perets Declaration, ¶ 7. The AMOS-4 annual sales sum to $18 million. Furthermore, the AMOS-4 backlog (contractual obligation to third parties) for future service sums to over $70 million. Perets Declaration, ¶ 7. 9. In addition to the commercial uses that generate the significant revenue above, certain government agencies use Group A Frequencies, including the State of Israel. Perets Declaration, ¶ 8. Spacecom is unable to provide additional information regarding the government use of Group A Frequencies due to the confidential and national interests involved. Perets Declaration, ¶ 8. However, it suffices to state that there are significant non-monetary values attached to the continued use of Group A Frequencies by such government agencies. Perets Declaration, ¶ 8. As clearly stated by Mr. Schubert in the FCC Letter, “[t]he national on-going -5- Case 20-32299-KLP Doc 2247 Filed 05/24/21 Entered 05/24/21 17:44:23 Desc Main Document Page 6 of 19 operations of the Israeli government as well as the operation of major international commercial entities will be severely damaged by the unilateral rejection by Intelsat of the [Spacecom Agreements].” Perets Declaration, ¶ 8. The FCC Letter also provides that “unilateral rejection of a valid coordination agreement by Intelsat is an extreme and aggressive action which is not in line of the ITU spirit…[and] might set a dangerous precedence in the world of coordination and coordination agreements, which is governed by the ITU, and severally impair the utilization of satellite spectrum by satellite operators and users, in contradiction to the ITU very basic concept of rational and efficient use of the spectrum.” Perets Declaration, ¶ 8.