Report on Jabiru Satellite Ltd. - EXIM

EXPORT‐IMPORTBANK–OFFICEOFINSPECTORGENERAL

OFFICEOFINSPECTORGENERALEXPORT‐IMPORTBANKoftheUNITEDSTATES

ReportonJabiruSatelliteLtd.

December22,2015

OIG‐INS‐16‐01


INSPECTIONREPORTOIG‐INS‐16‐01

The Export‐Import Bank of the United States (“Ex‐Im Bank”) is the official export‐credit agency of the United States. Ex‐Im Bank is an independent, self‐sustaining executive agency and a wholly‐owned US government corporation. Ex‐Im Bank’s mission is to support jobs in the United States by facilitating the export of US goods and services. Ex‐Im Bank provides competitive export financing and ensures a level playing field for US exports in the global marketplace.

The Office of Inspector General, an independent office within Ex‐Im Bank, was statutorily created in 2002 and organized in 2007. The mission of the Ex‐Im Bank Office of Inspector General is to conduct and supervise audits, investigations, inspections, and evaluations related to agency programs and operations; provide leadership and coordination as well as recommend policies that will promote economy, efficiency, and effectiveness in such programs and operations; and prevent and detect fraud, waste, abuse, and mismanagement. This inspection was conducted in accordance with the 2012 Quality Standards for Inspection and Evaluation as defined by the Council of Inspectors General on Integrity and Efficiency. This report does not constitute a Government audit and therefore, it was not conducted following the Generally Accepted Government Auditing Standards (“GAGAS”).

To: DavidSena,SeniorVicePresident&ChiefFinancialOfficer ClaudiaSlacik,SeniorVicePresident&ChiefBankingOfficerFrom: MarkThorum

AssistantInspectorGeneral,Inspections&Evaluations

Subject: ReportonJabiruSatelliteLtd.AP086539XX

Date: December22,2015

AttachedpleasefindthefinalinspectionreportonJabiruSatelliteLtd.(AP086539XX).Thereportoutlinesfourrecommendationsforcorrectiveaction.OnDecember21,2015,Ex‐ImBankprovideditsmanagementresponsetoadraftofthisreport,agreeingwiththefourrecommendations.TheresponseidentifiedtheBank’sactionstoaddresstherecommendations.OIGconsiderstheBank’sactionssufficienttoresolvethereportedrecommendations,whichwillremainopenuntilOIGdeterminesthattheagreeduponcorrectiveactionsaresuccessfullyimplemented.Pleasenotethatthisreportcontainsbusinessconfidentialinformationandisnotforexternaldistribution.AredactedversionofthisreportwillbepostedontheOIGwebsiteshortly.

cc: CharlesJ.Hall,EVP&CROMichaelMcCarthy,DeputyInspectorGeneralAngelaFreyre,SVP&GeneralCounselMichaelWhalen,VPStructured&ProjectFinanceDivisionWalterKeating,VPAssetManagementDivisionInciTonguch‐Murray,DeputyCFOJenniferFain,DeputyAIGIEParisaSalehi,Counsel,OIGLawrenceWielinski,InspectorDanielWong,Inspector

Attachment:InspectionReportonJabiruSatelliteLtd.,OIG‐INS‐16‐01,December2015


WhyWeDidThisInspection

SatellitefinancinghasbecomeoneofEx‐ImBank’sfastestgrowingsectorsinitscreditportfoliowithatotalauthorizedamountof$4.9billionasofSeptember2015.WeinitiatedaninspectionofthedefaultedNewSat/JSLsatellitefinancingtoreviewtheeventsandcausalfactorsthatledtothedefault.AlthoughourfindingsandrecommendationsprimarilyrelatetotheNewSat/JSLtransaction,thegoalistohelpidentifypotentialsystemicimprovementsintheBank’spoliciesandproceduresforsatellitefinancing.

WhatWeRecommend

1. Ex‐ImBankshouldreviseitscreditpoliciesforsatellitefinancingstobetterprotectitsinterestsagainsttheriskofnon‐completionduringthetimebeforeaprojectbecomesoperational.

2. Ex‐ImBankshouldcompleteareviewofitspoliciesandstrategiesinthesatellitesector.

3. Ex‐ImBankshouldreviseitspoliciesformonitoringtransactionsduringthetimebetweenapprovalandoperatingstatustoprovideadditionalmonitoringcomparabletopost‐operativeprocedures.

4. Ex‐ImBankshouldreviseitspoliciestorequireafollowupanalysisofthetransactionriskratingandparticipantcreditworthinesspriortofinancialclosingwhencircumstancesindicateapossiblematerialchangesincetheBoardapprovalofthetransaction.

EXECUTIVESUMMARY InspectionReportonJabiruSatelliteLtd.OIG‐INS‐16‐01,December2015

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For additional information, contact the Office of Inspector General at (202) 565-3908 or visit http://exim.gov/about/oig

WhatWeFound

TheJabiru‐1SatelliteProjectinvolvedtheconstructionandlaunchofasatellitewithprojectedcostsofapproximately$620million.Ex‐ImBankprovideda$300.5milliondirectloancommitment,ofwhich$139.1millionwasdisbursedbeforefundingwashalted.

TheProjectposednumerouschallengestoEx‐ImBankandotherlendersfromtheoutset,includinganinexperiencedandfinanciallyweakcorporatesponsor(“NewSat”),costoverruns,andsignificantcorporategovernanceissuesatboththeProjectandatNewSat.ThesefactorswouldeventuallyleadtodefaultsundertheProject’screditagreementswiththeLendersanditsunderlyingsatelliteconstructioncontractwithLockheedMartin(“LM”).InApril2015,theLendersandtheAdministratorsengagedininsolvencyandbankruptcyproceedingsinAustraliaandtheUnitedStatesinanattempttorestructuretheProjectandcontinuethesatelliteconstruction,buttheseeffortswereunsuccessful.NewSatisinliquidationandLMownstheunfinishedsatellite.The$139.1millionowedtoEx‐ImBankbyNewSatandtheProjectisindefault.Atthetimeofthisreport,Ex‐ImBankhasrecouped$4.3millionfromthesaleofNewSat’sassetsandadditionalsubstantialrecoveriesappearunlikely.

Ourinspectiongeneratedseveralfindings:

1)AlthoughEx‐ImBankidentifiedandmitigatedmanyoftheprojectspecificrisksofthetransaction,theBankdidnotsufficientlyaddresstheriskoftheinexperiencedandfinanciallyweakSponsor‐Guarantor,NewSat.OIGfoundthatNewSatlackedsufficientfinancialresources,managementdepth,technicalexpertise,andindependentboardmemberoversighttoproperlymanagesuchalargeproject.

2)ThetransactionstructuredidnotadequatelyprotectEx‐ImBankagainsttheriskoftheBorrower’sdefaultunderthesatelliteconstructioncontract,asitdidnotprovideseniorlenderswithasecuredinterestintheunderlyingProjectassetsduringconstruction.

3)Ex‐ImBank’spoliciesandpracticesformonitoringtransactionsduringthetimebetweenBoardapprovalandoperativestatusarelessdevelopedthanpost‐operativemonitoringprocedures.Wefounddelaysinaddressingcorporategovernanceissuesanddowngradingtheriskrating.

4)NewSat’sfinancialconditionwasdeterioratingpriortoclosing,butEx‐ImBankdidnotidentifytheseissues,andNewSatdidnotmaketimelydisclosuresoftheseissuesasrequiredbytheFinanceDocuments.



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TABLE OF CONTENTS

EXECUTIVE SUMMARY .................................................................................................................... 4

TABLE OF CONTENTS ...................................................................................................................... 5

LIST OF FIGURES AND TABLES ......................................................................................................... 6

ABBREVIATIONS AND GLOSSARY .................................................................................................... 7

I. INTRODUCTION .......................................................................................................................... 10

II. INSPECTION SCOPE AND POINTS OF INQUIRY .......................................................................... 17

III. PRINCIPAL FINDINGS AND RECOMMENDATIONS.................................................................... 18

IV. CONCLUSION ........................................................................................................................... 35

APPENDIX A: MANAGEMENT RESPONSE AND OIG EVALUATION ................................................ 38

APPENDIX B: INSPECTION METHODOLOGY .................................................................................. 44

APPENDIX C: JSL TRANSACTION TIMELINE ................................................................................... 46

APPENDIX D: EX‐IM BANK’S SATELLITE PORTFOLIO ..................................................................... 52

APPENDIX E: SOURCES AND USES OF FUNDS ............................................................................... 54

ACKNOWLEDGEMENTS ................................................................................................................. 56



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LIST OF FIGURES AND TABLES

FIGURE 1: TRANSACTION STRUCTURE AND PARTICIPANTS ......................................................... 11

TABLE 1: EX‐IM BANK DISBURSEMENTS ....................................................................................... 13

TABLE 2: WORKING GROUP FINDINGS AND RECOMMENDATIONS ............................................. 17

TABLE 3: SUMMARY OF MANAGEMENT’S COMMENTS ON THE RECOMMENDATIONS ............. 43

TABLE 4: OIG INTERVIEWS DURING FIELDWORK PHASE .............................................................. 45

TABLE 5: SATELLITE PORTFOLIO (FY 2010 – 2015) ........................................................................ 52

TABLE 6: SOURCES OF FUNDS ....................................................................................................... 54

TABLE 7: USES OF FUNDS .............................................................................................................. 55



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ABBREVIATIONS AND GLOSSARY

Term Description

Administrator PPBPtyLtdtradingasPPBAdvisory

AMD AssetManagementDivision,Ex‐ImBank

ASIC AustralianSecurities&InvestmentsCommission.Australia’scorporate,markets,andfinancialservicesregulator.

BankorEx‐ImBank Export‐ImportBankoftheUnitedStates

BCL BudgetCostLevel(“BCL”)isariskratingsystemofEx‐ImBankthatratesatransactiononaslidingscaleofone(lowrisk)to11(highrisk).TheBCLratingdetermineslossreservesthatwillbeallocatedbytheBankforthetransaction.

Board TheBoardofDirectors,Ex‐ImBank,responsibleforapprovingallprojectfinancingtransactionsover$10million.

BoardMemo/Memorandum

AmemorandumsubmittedtotheEx‐ImBankBoardaspartoftheprocessforapprovingatransactionforBanksupport.

Borrower JabiruSatelliteLtd.(“JSL”)or“Project”

COFACE CompagnieFrançaised'AssurancepourleCommerceExtérieur,theECAforFranceandglobalproviderofprivatecreditinsurance.

CommercialLenders SocieteGenerale,CreditSuisseandStandardCharteredBank

CreditAgreement The$300.5millionCreditAgreement among JSL,theBorrower,NewSat,theSponsor‐Guarantor,Citibank,N.A.,Ex‐ImBankFacilityAgentandEx‐ImBankdatedJuly4,2013.

CRTI Character,ReputationalandTransactionIntegrity.CRTIduediligenceisaprocessinitiatedbyEx‐ImBanktovettransactionparticipants,whichconsistsofanalysesofcompaniesandindividualstoidentifypotentialfraud,corruptionandintegrityrisksassociatedwithpartiestoatransaction.

CTA/AmendedandRestatedCTA

CommonTermsAgreement.Anagreement betweentheLendersandtheBorrower,settingforththetermsandconditionsofthecreditthatarecommontoalloftheseniorsecuredlenders.TheoriginalsigningoftheCTAoccurredonJuly4,2013.TheCTAwassubsequentlyAmendedandRestatedonFebruary12,2014.

DSCR DebtServiceCoverageRatio.DSCRistheratioofcashavailablefordebtservicedividedbydebtservice(principalandinterest).

ECA ExportCreditAgency

FinancialCloseDate PertheCTA,the“FinancialCloseDate”forthetransactionisdefinedas“thedateonwhicheachoftheconditionsprecedentreferredtoinClause3.1(InitialConditionsPrecedent)andClause3.2(FurtherConditionsPrecedent)havebeensatisfiedorwaivedinaccordancewiththetermsofthisAgreement.”



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Term Description

FSS FixedServiceSatellite

Jabiru‐1 ThesatellitebeingfinancedbyadirectloanfromEx‐ImBank.

JSL JabiruSatelliteLimited.JSListheBorroweroftheEx‐ImBankdirectloan.

ICRAS InteragencyCountryRiskAssessmentSystem.TheICRASprocessinvolvestheperiodicassessmentofthecreditriskassociatedwithUScreditassistancetoforeigncountriesutilizingaconfidentialinteragencyprocess.

IntercreditorAgent DeutscheBankTrustCompanyAmericas

KYC KnowYourCustomer(“KYC”)practicesareasetofrequirementsutilizedbyEx‐Banklendersinconjunctionwithtransactionduediligenceintheassessmentofintegrity,corruptionandbriberyrisk.

Ka‐band Thistermrefersto“K‐above band.” Itis thebanddirectlyabovetheK‐bandofthemicrowavebandoftheelectromagneticspectrum.Ka‐bandisbecomingmorepopularduetotherapidexhaustionofexistingKu‐bandsatellites.

Ku‐band Thistermrefersto“K‐underband.”ItisthebanddirectlybelowtheK‐bandofthemicrowavebandoftheelectromagneticspectrum.Ku‐bandisprimarilyusedforsatellitecommunications,particularlyforeditingandbroadcastingsatellitetelevision.

LLCR LoanLifeCoverageRatio.AsdefinedintheCTA,itmeans,asofanydateonoraftertheStartingPointofCreditforanyperiodfromsuchdatethroughtheendoftheRepaymentPeriod,theratioof(a)theNetPresentValueofthe“CashFlowAvailableforDebtService”assetforthinthe“Rollup”taboftheAgreedFinancialModelforsuchperiodto(b)thesumoftheaggregateprincipalamountsoutstandingunderallSecuredFacilitiesplusallotherPermittedIndebtedness(otherthantheMezzanineLoansandtheCashCollateralizedL/CObligations)havingamaturitydateofone(1)yearormorefromsuchdate,ineachcaseasofsuchdate.

LM LockheedMartinCorporation,theprimaryUSexporterandmanufacturerofJabiru‐1.

LoanManual Ex‐ImBank’sLoan,GuaranteeandInsuranceManual,whichsetsforththepoliciesandproceduresforduediligence,structuringandmonitoringofBanktransactions.

MonitoringManual Ex‐ImBank’sAssetManagementDivisionOperatingManual

MEASAT MEASATSatelliteSystemsSdn,Bhd.,thesatelliteoperator.

NewSat NewSatLimited,theSponsor‐Guarantor.



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Term Description

Off‐taker Partywhoisbuyingtheproductorservicethattheprojectproduces.

OIG OfficeofInspector General, Ex‐Im Bank

OrbitalSlot AhighEarthorbitthatallowssatellitestomatchtherotationoftheEarthandthusappeartostayinplaceoverthesamelocationonEarth.

Receiver McGrathNicol Partnership

S‐band Partofthemicrowavebandusedbyweatherradar,surfaceshipradarandsomecommunicationsatellites.

SecurityTrustee CiticorpInternationalLimited

SFD Structured andProject FinanceDivision,Ex‐ImBank

Sponsor‐Guarantor NewSatLimited. (“NewSat”)

Teleport Acenterthatlinkssatellitestoground‐basedcommunications.



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REPORT ON JABIRU SATELLITE LTD. I. INTRODUCTION

Ex‐Im Bank’s Satellite Portfolio SatellitefinancinghasbecomeoneofEx‐ImBank’sfastestgrowingsectorsinitscreditportfoliowithatotalauthorizedamountof$4.9billionasofSeptember30,2015.1Thesatelliteportfolioconsistsofamixtureofcorporate,structured,projectandsovereignfinancings,includingbothdirectloansandguarantees.FurtherdetailsontheEx‐ImBank’ssatellitecreditportfolioareprovidedinAppendixDofthisreport.

II. JABIRU SATELLITE LTD.

Project Description

TheJabiru‐1SatelliteProject(the“Project”or“Jabiru‐1”)involvedtheconstructionofamixedKu/Ka/S‐bandsatellitebyLockheedMartinCorporation(“LM”)plusgroundequipment,launchandlaunchinsurance.2ThesatellitewastoprovideKa‐bandwholesalecapacitytocustomers(e.g.,serviceproviders,resellersandtelecoms)invariousregionsoftheMiddleEast,SouthAsiaandNortheastAfrica.Jabiru‐1’sKu‐andS‐bandpayload,tobeownedandoperatedbyMEASATthroughcontractwithJabiruSatelliteLtd.(“JSL”or“Borrower”),wouldhaveprovidedcoverageinSoutheastAsia.

ThelaunchofthesatellitewouldhavetransformedNewSatLtd.(“NewSat”or“Sponsor‐Guarantor”)ofMelbourne,Australiafromasatellitecommunicationscompanythatdeliveredinternet,voice,dataandvideotocustomersviathirdpartysatellitesusingitsnetworkofgroundbasedteleportsintoasatelliteowner.Jabiru‐1wouldhavebeenAustralia’sfirstprivatelyownedcommercialsatellite.ThistransactionalsorepresentedEx‐ImBank’sfirstsatelliteprojectfinancinginAustraliaandfirstsatellitetransactionwithLMastheprimaryUSexporter.

Project Structure

NewSatestablishedJSLasawholly‐ownedspecialpurposesubsidiarytoown,build,launchandmanageJabiru‐1.LMservedasthesatellitedesignerandmanufacturerwithArianespaceastheprovideroflaunchservices.InternationalSpaceBrokers,asubsidiaryofAonRiskSolutions,wasengagedtoprovidelaunchinsurance.MEASAT,aMalaysian

1Formoreinformation,seehttp://www.satellitetoday.com/regional/2014/02/21/ex‐im‐bank‐to‐continue‐support‐to‐us‐satellite‐communications‐industry/.

2OnDecember8,2011,NewSatandLMenteredintoafixedpricecontractforthedesign,manufacture,testingandon‐grounddeliveryofacommercialsatellite,Jabiru‐1,andrelatedlaunchmissionoperations.OnMay25,2012,theoriginalsatelliteconstructioncontractwasamendedandrestatedtoamongotherthingsassignthecontracttoJSLwithNewSatasGuarantorandaddress“keybankabilityconcerns”oftheLendersandtheiradvisors.ThecontractwasamendedatotalofseventimeswiththefirstamendmentoccurringonJuly17,2012,exercisingoption3ofthecontracttoincludeanS‐bandcommunicationssubsystem.



11

communicationssatelliteoperator,wasengagedtooperateJabiru‐1inanorbitalpositionownedbyMEASAT.

Figure 1: Transaction Structure and Participants

3

(b) (4)

(b) (4), (b) (5)

(b) (4)



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Financial Arrangements

ThetotalprojectcostforJabiru‐1attheFinancialCloseDateonFebruary13,2014,4wasestimatedat$619.9million,5financedbya$300.5millionlong‐termdirectloanfromEx‐ImBank, incommercialbankloanscoveredbyaCOFACEguarantee,6a

standbyfacilityfromStandardCharteredBank(“SCB”),and$204.8millionofequityinvestmentbyNewSatasSponsor‐Guarantor,including inmezzaninefinancingadvancedbyEverTycoonLimitedtoNewSat.7Thereportedvalueoftheteleportandorbitalslots,consideredbyEx‐ImBankassupplementalequityontopofthe$204.8million,was .8Abreakdownofthetransaction’ssourcesandusesoffundsisshowninAppendixE.

OnJune14,2012,Ex‐ImBank’sBoardapprovedadirectloanof$281.0milliontoJSL.AftertheBoard’sinitialapproval,theauthorizedamountforthedirectloanwasincreasedto$300.5millionthroughtwoamendments.Thefirstamendment,whichoccurredinJanuary2013,increasedtheBank’sauthorizedamountforthedirectloanby$9.6million.9ThiswasduetotheSponsor‐Guarantor’sinabilitytoraisetherequiredequityandanincreaseintheProject’scost.Asaresult,JSLrequiredadditionalexportcreditagency(“ECA”)debtfinancingandchangesinthecapitalstructureoftheProjecttoaccommodateadditional

4PertheCommonTermsAgreement(“CTA”),the“FinancialCloseDate”forthetransactionisdefinedas“thedateonwhicheachoftheconditionsprecedentreferredtoinClause3.1(InitialConditionsPrecedent)andClause3.2(FurtherConditionsPrecedent)havebeensatisfiedorwaivedinaccordancewiththetermsofthisAgreement.”P.18oftheCTAdatedJuly4,2013,andtheAmendedandRestatedCTAdatedFebruary12,2014.

5

6TheCOFACEguaranteecoveredadirectloanfinancedequallybythreecommercialbanks,SocieteGenerale,CreditSuisseandSCB.

7

8

9Ex‐ImBankBoardMemorandumandtwoamendmentsdatedJune6,2012,January10,2013andFebruary12,2014,respectively.Ex‐ImBank’sBoardapprovedthefirstamendmentonJanuary17,2013.Boardapprovalwasrequiredasthemodificationstotheloanapprovalintheaggregate(increaseintheloanamount,changeintheinitialdebt/equityratiofrom60/40to64/36,andpaymentofaportionoftheexposurefeeasAnnualExposurePremium)weredeemedmaterial.UndertheBank’spolicyforIndividualDelegatedAuthority,Boardapprovalwasnotrequiredforthesecondamendmentastheincreaseintheauthorizedloanamountwaslessthanorequalto$10million.

(b) (4) (b) (4)

(b) (4)

(b) (4)

(b) (4)

(b) (4)

(b) (4)



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seniorandmezzaninelenders.Atthistime,thedebtguaranteedbyCOFACEwasincreasedby andadditionalfundingof

fromSCBwassecured.ThesecondamendmentinFebruary2014increasedEx‐ImBank’sauthorizedamountby$9.9milliontoaccommodatechangesinindividualProjectcostitems.Atthistime,thedebtguaranteedbyCOFACEwasreducedfrom

duetoadecreaseintheamountofFrenchexports.

FinancialCloseDatefortheEx‐ImBankcreditfacilityoccurredonFebruary13,2014,10atwhichtimethedirectloanbecameoperative.ThefirstdrawunderthefacilityoccurredonFebruary21,2014.TheBankdisbursedatotalof$139.1millionunderits$300.5millioncreditfacility(seeTable1below).

Table 1: Ex‐Im Bank Disbursements (Confidential and Proprietary Information)

Request Date Paid Date Amount Description

Feb13,2014 Feb21,2014 $41,145,800.00 DirecttoJSLforLMmilestonepaymentsFeb28,2014 Apr4,2014 $85,295,212.00 LOCpaymenttoLMformilestonepayments

Feb28,2014 Apr16,2014$12,670,986.95 DirecttoJSLforLMservicesandvarious

advisoryfeesforfinancial,legal,andtechnicaladvisors

Total $139,111,998.95Source: AP086539 FMS Record of Disbursements, Retrieved by Ex‐Im Bank Staff on August 4, 2015

Construction of Satellite

ConstructionofJabiru‐1beganinJanuary2012atLM’sNewtown,Pennsylvaniafacility.LaterinJuly2012,LMsloweddownthepaceoftheconstructionduetotheinabilityofNewSattomeettheoriginaldeadlineofJuly5,2013,forfinancialclosing.Testingandpre‐shipmentreviewofthesatellitebyLMwerescheduledforMarch24,2016,withthesatelliteavailableforshipmenttothelaunchsiteatCentreSpatialGuyanaisnearKourou,FrenchNewGuineabyMarch25,2016.ThewindowforlaunchofJabiru‐1byArianespacewasscheduledforMay2016.

Transaction History: Post Closing

SinceEx‐ImBank’sBoardapprovalinJuly2012,theProjectexperienceddifficultiesassociatedwiththeBorrower’sandSponsor‐Guarantor’sinabilitytocomplywiththerequirementsoutlinedintheFinanceDocuments.Ex‐ImBankstaffattributedthedelaystolackofexperienceandpoorprojectmanagementatNewSat.11Inaddition,varioustechnicaldefaultssuchasfailuretodeliverfinancialstatements had occurred,whichtheLendersagreedtowaivepursuanttoWaivers1and2datedFebruary12,2014,andApril3,2014,respectively.

10Supranote4.

11Ex‐ImBankBoardMemorandumdatedJune23,2015,p.4.

(b) (4) (b) (4)

(b) (4)



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InJuly2014,theLendersstoppeddisbursementstoJSL,primarilyduetoallegationsofmisconductbycertainNewSatofficersanddirectors(discussedinmoredetailbelow).Duringthistimeperiod,ateamconsistingofstafffromtheStructuredandProjectFinanceDivision(“SFD”),AssetManagementDivision(“AMD”)andOfficeofGeneralCounsel(“OGC”)oversawthemonitoringandrestructuringofthetransaction.Throughouttherestructuringprocess,theBankconsideredvariousoptions,includinga“walkaway”strategy,“assetsale”strategy,and“goingconcern”strategy.12

OnJuly15,2014,JSLdefaultedona$1.1millioninterestpaymenttoEx‐ImBankduetothesuspensionofdisbursements,includingdisbursementstocoverinterestduringconstruction.InAugust2014,NewSatandtheLendersnegotiatedWaiver3toprovideamechanismfortheresumptionoffunding,whichincludedrequirementsfortheSponsor‐Guarantortoraiseanadditional$40millionequity/mezzaninedebtandtohirethreenewindependentboarddirectorsandaChiefFinancialOfficer(“CFO”).TheSponsor‐Guarantorfailedtocomplyfullywiththeconditionssetoutinthewaiver.Forexample,NewSatraisedonly$10millioninadditionalfunds.Inaddition,theallegationsofmisconductwereconfirmed.Asaresult,theLendersdeclinedtoresumefundingoftheProject.

InDecember2014,theLendersbegannegotiationsonWaiver4withthreenewly‐appointedindependentboarddirectorsandthekeyProjectparticipants.ThewaiversupportedarecapitalizationplanthatwouldhaveledtoresumptionoffundingbytheLenders.ThewaiverwouldalsohavegrantedtheLendersstep‐inrightsifconditionsoffundingwerenottimelymet.However,thisplanwascomplicatedbytherefusalbyLMandArianespacetocommittoascheduletocompleteconstructionandmovethelaunchwindow.

InMarch2015,COFACErefusedtoapproveWaiver4andassertedthatitwasina“stoploss”positionandwouldnotapproveanyresumptionoffundingwithrespecttotheProject.COFACE’sdecisiontodiscontinueitsguaranteeofthedirectloanresultedinagapindebtfundingofapproximately .13TheLenderssubsequentlydecidedtotakeenforcementactionstopreservetheremainingvalueofthesatelliteconstructionandlaunchcontractsaswellastheremainingteleportsbusiness.

OnApril16,2015,theLendersstartedinsolvencyproceedingsagainsttheProjectandNewSatinAustralia,initiatingtheappointmentofanAdministratortomanagethecompaniesduringthebankruptcyproceedingsandaReceivertooverseeasset

12SummaryofEx‐ImBankOptions,SPI,March2,2015.“Walkaway”strategywasdefinedas“Ex‐Imrecognizescurrentexposureasalossandwalksawayfromtheproject.”“Assetsale”strategywasdefinedas“Ex‐Imcontinuestoinvest,butrequiressaleoftheunderlyingassettooffsetlosses.”“Goingconcern”strategywasdefinedas“Jabiru‐1isoperatedandmarketedasplanned.”OnMarch25,2015,theJSLtransactionwasofficiallytransferredfromtheBank’sSFDtoAMD(SeeFinding2Aofthisreportfordiscussiononthetransfer).OnApril2,2015,JSL’sBCLriskratingwasdowngradedbyAMDfrom

.

13

(b) (4)

(b) (5), (b) (4)

(b) (4)



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recoveries.14,15ActingonbehalfofNewSatandtheProject,theAdministratorthenfiledforprotectionundertheUSBankruptcyCodeandreceivedatemporaryrestrainingordertostaytheterminationoftheProjectcontracts.ThisgaveEx‐ImBank,theReceiverandanewlyhiredfinancialadvisortimetodevelopaviablefundingplantorenegotiatetheProject’sdefaultedagreementswithLMforsatelliteconstructionandwithArianespaceforlaunchservices.However,theLendersandtheProjectwereunabletosecureadditionalfundingorsuccessfullyrenegotiatetermswithinthetimeprovidedbythebankruptcyproceedings,andthecontractswereterminated.PursuanttothetermsofthecontractbetweentheProjectandLM,LMretainedownershipoftheunfinishedsatellite.

AsofJune23,2015,Ex‐ImBank’stotaldebtoutstandingfortheJabiru‐1Projectwas$139.1millionand fortheCOFACElenders.16Asofthedateofthisreport,theBankhasrecovered$4.3millionfromthesaleofNewSat’steleportbusinessandexpectsadditionalrecoveriesfromthelaunchinsurancedeposit.17

Factors Contributing to the Default by JSL

ThefollowingisabriefsummaryofthecontributingfactorsthatledtheLenderstostopdisbursements,resultinginthesubsequentdefaultbyJSLinpaymentstoLMandbankruptcyproceedings.

Inability to Raise Equity

NewSatwasunabletoraisethe$40millioninequityrequiredbyWaiver3datedAugust21,2014.Atthetimeofthewaiver’sconditionalapproval,NewSat’sstockhaddropped44percentfromthepriceatfinancialclosingand67percentfromthepricenearinitialBoardapproval.TheproposedWaiver4alsorequiredtheSponsor‐Guarantortoraise$80millioninequity.ThismaynothavebeenaviablesolutiongivenNewSat’spriorinabilitymeettheequityrequirementsinWaiver3andtoraiseadditionalequityasrequiredatinitialBoardapproval(seeearlierdiscussion).TheSponsor‐Guarantorwasonlyabletoraise$204.8millionof$237.1millioninequityrequiredatinitialBoardApprovalasaconditionprecedenttothefirstdisbursementfromEx‐ImBank.

Decrease in Existing Teleport Revenues

14UnderAustralianinsolvencylaws,theappointmentofanAdministratorisrequired.TheAdministratorisresponsibleformanagingthecompanyintheinterim.TheappointmentofaReceiverwasatthediscretionoftheLenders.TheReceiverisresponsibleforassetrecoveryowedtosecuredcreditors.

15Concurrently,theAdministratoronbehalfofNewSatandsixaffiliateddebtorsfiledforprotectionunderChapter15oftheUSBankruptcyCodewiththeUSBankruptcyCourt,DistrictofDelaware(“BankruptcyCourt”).ThesixaffiliateddebtorswereJSL,NewSatNetworksPtyLtd,NewSatServicesPtyLtd,NewSatSpaceResourcesPtyLtd,JabiruSatelliteHoldingsPtyLtd,andNSNHoldingsPtyLtd.

16

17

(b) (4)

(b) (4), (b) (5)

(b) (5), (b) (4)



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OnFebruary21,2014,thedateofEx‐ImBank’sfirstdisbursementtoJSL,NewSatannouncedasharpdeclineinoperatingprofitforthefirsthalfoffiscalyear(“FY”)2014(fromJuly1toDecember31,2013)duetolowerrevenuesfromexistingteleportcustomers.ThiswasacontributingfactorthattriggeredtherequirementbytheLendersfortheSponsor‐GuarantortoraiseadditionalequityforJSL.18Forfurtherdetails,seeFindings1Aand2Bofthisreport,respectively.

Corporate Governance Issues

In2014,independentboarddirectorsatNewSatorderedaninternalcorporategovernancereview(knownas“theRuddReport”)ofNewSat.TheRuddReporthighlightedareasofconcernregardingcorporategovernanceatNewSat.Furthermore,threenon‐executiveboarddirectorssubsequentlyresigned.

ThefindingsweredisclosedtotheBankinJune2014.TheLendersstoppedfurtherdisbursementstoJSLandinformedNewSatoftheirdecision.TheLendershiredaforensicauditor,FerrierHodgson(“FH”),toconductareviewofNewSat.FHconfirmedtheallegationsofcorporategovernanceissuesidentifiedintheRuddReport,specificallyhighlightingthefollowingkeyareasofconcern:

• Useofnon‐independentboarddirectors–AdrianBallintine,ChiefExecutiveOfficer(“CEO”)ofNewSat,haddefactocontrolovertheNewSatboard.CertainboardmemberswerelikelynotindependentunderAustralianlaw.Inaddition,NewSat’sboard,throughitsCFO,authorizedquestionablepaymentstotheCEO.

• Inappropriaterelatedpartytransactions–NewSatwasinvolvedinnumerousrelatedpartytransactions,manyofwhichwerenotproperlydisclosedorapprovedbyshareholders.Forexample,certainpaymentstoCrestaMotorYachts,acompanycontrolledbyNewSat’sCEO,madein2011and2012werenotdisclosedinNewSat’sfinancialstatementsuntilSeptember30,2014.

• UsageoffundsforpersonalexpensesbytheCEO–NewSat’sCEOusedcompanyproceedstofundhisownpersonalexpenses,includingtheexpensesofhiscompanyCrestaMotorYachts.

Ex‐Im Bank’s Lessons Learned Review

ConcurrentwithOIG’sinspection,aninterdivisionalworkinggroup(“WorkingGroup”)wastaskedtoreviewthe$300.5milliondirectloantoJSLandidentifylessonslearnedfromthedefault.19TheWorkingGroupconsistedofBankmanagementandstaffindependentoftheJSLtransactionfromtheCreditPolicyDivision,SFD,AMDandOGC.OversightofthereviewwasprovidedbytheOfficeofCreditRiskManagement.

18

19Ex‐ImBank’sLessonsLearnedMemorandumdatedNovember16,2015.

(b) (4), (b) (5)



17

AccordingtoadraftprovidedtoOIGnearthecompletionofourinspectionwork,theWorkingGroup’sprimaryfindingsconfirmedthattherewereweaknessesinthetransactionstructureandkeyrisksthatwerenotadequatelydisclosedtotheBoard.ThegrouphasproposedanumberofcorrectiveactionstotheBank’sEnterpriseRiskCommitteeinresponsetothelessonslearnedreview.

II. INSPECTION SCOPE AND POINTS OF INQUIRY

Inspection Scope

TheobjectiveoftheOfficeofInspectorGeneral’s(“OIG”)inspectionwastoassessthelevelofduediligence,policycompliance,riskassessmentandmitigation,andmonitoringperformedbyEx‐ImBank.

AcombinationofquantitativeandqualitativetechniqueswasemployedbytheOIG’sOfficeofInspectionandEvaluation(“OIE”)aspartofitsreview.AmoredetaileddiscussionoftheinspectionmethodologyisprovidedinAppendixBofthisreport.

Points of Inquiry

ThefollowingPointsofInquirydirectedourfocusandhelpedguideourinspection:

POINTOFINQUIRY1:DidEx‐ImBankconductsufficientduediligenceofallaspectsoftheprojectfinancingandpartiesinaccordancewithBankpoliciesand

(b) (4), (b) (5)



18

procedures?DidtheBankstructurethetransactionadequatelytoprotectitsinterests?

POINTOFINQUIRY2:DidEx‐ImBankprovideeffectiveoversightandmonitoringduringthepre‐andpost‐closingphasesofthetransactioninconsiderationoftheProjectsheightenedrisks?

TheOIGconductedthisinspectionduringFY2015inaccordancewiththe2012QualityStandardsforInspectionandEvaluationasdefinedbytheCouncilofInspectorsGeneralonIntegrityandEfficiency.20Thosestandardsrequirethatweplanandperformtheinspectiontoobtainsufficient,appropriateevidencetoprovideareasonablebasisforourfindingsandconclusionsbasedonourinspectionobjectiveandpointsofinquiry.Webelievethattheevidenceobtainedprovidesareasonablebasisforourfindingsandconclusions.

III. PRINCIPAL FINDINGS AND RECOMMENDATIONS

Inwritingthisreport,OIGrecognizesthatourfindingsandrecommendationsprimarilyrelatetotheJabiru‐1financing,andmaynotnecessarilybegeneralizedtothebroaderuniverseofEx‐ImBanktransactions.OurapproachistoreviewtransactionsfromalessonslearnedperspectiveandtohelpidentifypotentialsystemicimprovementsintheBank’spoliciesandprocedures.ThereportisguidedbythetwoPointsofInquirylistedabove.Foreachpoint,OIGprovidesapplicablecriteriabasedonEx‐ImBank’spoliciesandprocedures,marketbestpractices,peerentities,aswellasratingagencycriteria.ThereportcontinueswithOIG’sfindingsandrecommendationstomanagement.

PointofInquiry1:DidEx‐ImBankconductsufficientduediligenceinaccordancewithBankpolicies,proceduresandindustrybestpractices?DidtheBankstructurethetransactiontoadequatelyprotectitsinterests?

Applicable Standards

OIGreviewedvariousApplicableStandardsandfocusedonthefollowing:

1. Ex‐ImBank’spoliciesonanalyzingprojectriskfactorsasoutlinedinChapter14:ProjectFinanceofEx‐ImBank’sLoan,GuaranteeandInsuranceManual(“LoanManual”),updatedJanuary2013;

2. Ex‐ImBank’sSatelliteandTerrestrialTelecommunicationsFinancingPresentationandExecutiveSummary,July2011;

20Formoreinformation,seehttps://www.ignet.gov/sites/default/files/files/committees/inspect‐eval/iestds12r.pdf.



19

3. OMBCircularNo.A‐129,PoliciesforFederalCreditProgramsandNon‐TaxReceivables,ExecutiveOfficeofthePresident,OfficeofManagementandBudget,November2000andJanuary2013(Revised);

4. Ratingcriteriaforprojectfinanceusedbytheprincipalcreditratingagencies:Standard&Poor’s,Moody’sandFitchRatings;

5. Satelliteindustryreportsfromcommercialbanks,ratingagenciesandindustryadvisors;

6. Currentmarketpracticesincludingtermsandconditionsandcontractualprovisionsofothersatellitetransactionfinancings;and

7. Ex‐ImBank’spoliciesandproceduresonCharacter,ReputationalandTransactionIntegrity(“CRTI”)duediligenceoutlinedinChapter8:OtherGuidanceandChapter24:CreditReviewandComplianceoftheLoanManual,January2010andJanuary2013,respectively.

Analysis of Project Risk Factors

Aprojectfinancetransactioncanbebroadly‐definedasanon‐recoursefinancingofasingleassetorportfolioofassetswherethelendersrelyonthoseassetstogeneratetherequisitecashflowtorepaytheloan,asdefinedbythecontractualrelationshipswithineachproject.Assuch,recoursetotheproject’ssponsor/guarantorisgenerallylimitedasdefinedinthecollectionofcontractsandagreementsamongthevariousparties.

Reflectingthenon‐recoursenatureofthefinancing,Ex‐ImBank’spoliciesrequireacomprehensiveanalysisofallaspectsoftheprojectfinancing,includingthevariouspartiesinvolved.Amongtheriskfactorsthatarecommonlyaddressedaretheproject’splanofoperations,constructionrisk,projectedcashflowcoverageofdebtservice,currencyexposure,transactionandlegalstructure,sponsorqualifications,contractualagreementsandrelationships,risksharing,off‐takecontractsandmarketdemand.Inaddition,Section14.5.1RiskFactorsoftheLoanManualrequiresareview“ofeachsponsorandmajorprojectparticipant(off‐takers,EPCcontractor,O&Metc.)intermsoftheircreditworthinessandtheirabilitytocomplywithandmanagetheprojectwhichincludesananalysisofpastsimilarprojectexperience.Ifprojectpartiesarenotcreditworthy,astand‐byletterofcreditorparentguarantymayberequired.”

Further,theBank’sLoanManualrequiresadetailedanalysisofthefinancialmodel,includingareviewofassumptionsandsensitivities(basecase,upside,anddownside)foratransaction.

Transaction Structuring

Withrespecttostructuringofatransaction,Ex‐ImBankistoplayanactiveroleinthestructuringandexecutingofthefinancing.Section14.4.3oftheBank’sLoanManualstates,“ProjectFinancetransactionsrequirethecreditofficetobehighlyproactiveinthestructureofthefinancingterms,intercreditorrelationshipsandthesecuritypackage…involvesnegotiationswiththesponsors,lenders,andlocalgovernments,ifnecessary.Issuescontinuetobedeveloped,projecteconomicsareanalyzed,intercreditorissuesareresolved,anddocumentsarenegotiatedrequiringcontinuedanalysisandduediligence.”



20

Management and Operation of Federal Credit Programs

OMBCircularNo.A‐129“prescribespoliciesandproceduresforjustifying,designing,andmanagingfederalcreditprograms.”21Itincludespoliciesforcreditextensioncoveringapplicantscreening,creditworthinessassessment,loandocumentation,andcollateralrequirements.Specifically,theCircularsuggeststhattheriskofdefaultcanbereducedbyhavingwell‐managedcollateralrequirementsaspartofanagency’screditextensionpolicies.

Key Risks and Mitigating Factors for Satellites

InJuly2011,across‐disciplineteamofEx‐ImBankstaffpresentedtheresultsoftheirreviewofsatelliteandterrestrialtelecommunicationtransactionstotheBank’sCreditPolicyCommittee.Thepurposeofthereviewwastobroadlyidentify,characterizeanddistinguishkeyrisksandmitigatingfactorsinthesectorgiventheincreaseindemandforfinancing.Thereviewhighlightedtheriskynatureofsatelliteprojectfinancingandidentifiedthefinancingstructureofasatellitetransactionasakeyfactorforconsideration,specifically:

“…dealsthatrequireahighdegreeofstructuring(e.g.covenants,restrictions,etc.)andthatareassociatedwithrelativelyweakerborrowersand/orsmallermarketplayerscanbeveryrisky;projectfinancedeals(withabsolutelynorecoursetoacorporatebalancesheet)canbeprohibitivelyrisky….

Ex‐ImBankhasfinancedonlyonetelecommunicationsdealonaprojectfinancebasisanditresultedinaclaimanddebtwrite‐off.”22

Inaddition,thepresentationcoveredotherfactorsidentifiedbyBankstaffintheirreviewofsatellitetransactioncasestudies.Risksandmitigantsidentifiedbystaffincludedtheuseoflaunchandin‐orbitinsurancegiventhe“oneintenchanceoflaunchfailure,”themitigationofmarketriskbyaborrower’sabilitytogrowitsmarketshare,andtheimportanceofhavinganamortizationscheduleinresponsetouncertainrevenuesfromsatellitedeals.

Rating Agency Guidance and Industry Reports

Additionalguidanceonprojectanalysiscanbefoundintheratingcriteriausedbytheprincipalcreditratingagencies:Standard&Poor’s,Moody’sandFitchRatings.Theagenciesreviewarangeofissuesthatmayimpactaproject’sabilitytomaketimelypaymentofprincipalandinterestaswellasthelender’sabilitytorecoverpastdueamounts.Keyratingdriversincludecompletionrisk,operationandrevenuerisk,debt

21Formoreinformation,seehttps://www.whitehouse.gov/sites/default/files/omb/assets/fedreg/amend_a129.pdfandhttps://www.whitehouse.gov/omb/circulars_a129_rev2013.

22Ex‐ImBank’sSatelliteandTerrestrialTelecommunicationsFinancingPresentationandExecutiveSummary,July11,2011.Althoughthedocumentdoesnotprovidespecificcreditpolicyorunderwritingcriteria,itdoesprovideguidanceonkeyrisksandmitigatingfactorsforsatellitetransactions.



21

structure,debtserviceandcounterpartyrisk,legalstructureandcountryrisks.23Inaddition,thequalityofthesponsorandinvolvedpartiesisanimportantconsiderationwhenassessingtheoverallcreditworthinessofaproject.Inthisregard,ratingagenciesassessmanyfactorsincludingthesponsor’spriortrackrecord,itsabilitytoprovidefinancialsupportandlevelofcommitmenttotheproject.

OIGalsoreviewedvariousindustryreportspreparedbycommercialbanks,ratingagenciesandindustryadvisorstobetterunderstandthedynamicsandrisksspecifictothesatelliteindustry.Additionalriskshighlightedforsatellitecompaniesincludedgovernmentsequestrationandtroopwithdrawal,oversupplyofsatellitesfromregionaloperators,uncertaintyinbandwidthdemandduetoimprovingtechnology,andvolatilityofcontractedbandwidthfromyeartoyear.24Factorsthatdeterminetherelativecompetitivepositionwithinthetelecommunicationsindustryincludediversityofproductofferings,customerqualityandcustomerconcentration.25

Current Market Practices for Satellite Financings

Aspartofourinspectionwork,OIGreviewedthecreditdocumentationofsatellitefinancingsinEx‐ImBank’sportfolio.Inaddition,OIGinterviewedlegalcounseltotheLendersandotherProjectconsultantsandreviewedpubliclyavailableinformation26todeterminecurrentmarketpracticesrelatedtosatelliteconstructionrequirementsandthecontractualtermswithrespecttotransferoftitleandriskofloss.Ourinspectionworkdisclosedthatforsatellitetransactions,thetitleandriskoflossforkeyprojectassets(i.e.,thesatellite)typicallytransferfromthesatellitemanufacturertothepurchaseruponcompletionofsatelliteconstruction,priortolaunchorafterin‐orbittestinganddelivery.27

23Forexamplesofratingagencyguidanceonprojectfinance,seeS&P’sProjectFinanceFrameworkMethodologyathttps://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1359492&SctArtId=263469andFitchRatings’RatingCriteriaforInfrastructureandProjectFinanceathttps://www.fitchratings.com/jsp/general/login/LoginController.faces.

24Formoreinformation,seeGlobalFixedSatelliteServices,J.P.MorganGlobalEquityResearch,January6,2014,availablebysubscriptionathttps://www.jpmorgan.com/pages/about/investment‐banking/cazenove.

25Formoreinformation,seeKeyCreditFactorsfortheTelecommunicationsandCableIndustry,S&PRatingServices,June22,2014,availablebysubscriptionathttps://www.spratings.com/en_US/home.

26OIGreviewedpublicallyavailablesatelliteconstructioncontracts,industryjournals,andreferencescontainedincompanyfilingswiththeUSSecuritiesandExchangeCommission.

27Althoughprojectfinancingsvaryinstructure,lenderstypicallyrequiretheprojectcompany(“Borrower”)toprovideasecurityinterestinalloftheBorrower’sassetstosecuretherepaymentofdebt.Theseassetsincludetheprojectcompany’srightsundertheprojectdocuments,rightstotheprojectsiteandallequipment,insuranceproceeds,permits,etc.Inaddition,lenderstypicallyrequiretheprojectcompanytopledgeitsequityinterestsintheprojectunderapledgeagreement.Thisprovisionprovidesfurtherprotectiontolendersintheeventofdefaultasitallowslenderstotakecontroloftheprojectandorselltheprojectasagoingconcern.Foradditionalinformation,seehttps://www.lexisnexis.com/.../bankingandfinance/.../Securityandhttp://www.ebrd.com/downloads/legal/secured/roever7m.pdf.



22

WithrespecttotheconstructionofJabiru‐1,thetransferoftitletothesatellitefromLMtoJSLwastooccuruponcompletionofthepre‐shipmentreviewandtransferoflossoccursatlaunch.28,29WhenOIGstaffqueriedtheLenders’legalcounselonthispoint,theycitedseveralreasonsforthispractice.First,asthesatelliteisconstructedatthemanufacturer’sfacility,themanufacturerisresponsibleformaintainingcertainlevelsofinsurancecoverage(e.g.,ground/propertyandcommercialgeneralliability)duringtheperformanceofthecontract.Second,thevalueofasatelliteunderconstructionislimitedduetothelevelofcustomizationandthefactthatsatellitesaretypicallycompletedbythesamemanufacturerduetotheuniquetechnicalconstraintswithrespecttothedesign.

TheOIGreviewedfifteensatellitetransactionsapprovedbytheBank,withatotalvalueofapproximately$4.9billion,andcomparedthemtotheNewSattransaction.ThemajoritywerestructuredasacorporatefinancetransactionwheretheultimatesourceofrepaymentwastheBorrower.TwoofthetransactionswereloanguaranteeswithSovereignBorrowers.Typically,mostsatellitetransactionsarewithlargersatellitecompaniesthathaveothercollateraltopledgeorcanborrowdirectlythroughthestrengthoftheirbalancesheet.

CRTI Due Diligence

TransactionparticipantsarealsosubjecttoEx‐ImBank’sCharacterReputationalandTransactionIntegrity(“CRTI”)duediligenceprocess.30Pursuanttotheseguidelines,allpartiestothetransactionaretobevetted,includingtheforeignbuyer,borrower,projectsponsors,off‐takers,end‐users,guarantorsandprincipalownersofeachoftheseentities.TheBankadoptsarisk‐basedapproachtoduediligence,recognizingthatthelevelofduediligenceshouldbescaledtothenature,complexityandperceivedrisklevel.AkeyconcernisthepotentialforfraudandcorruptionastheymayresultinsignificantmonetarylosstothetransactionparticipantsandunderminetheBank’sinstitutionalintegrityandreputation.TheBank’spoliciesandproceduresrelatedto

28Thepre‐shipmentreviewisconductedbyLMpriortoshipmentofthesatellitetothelaunchlocation.

.

29Priortolaunch,LMwasrequiredtomaintaingroundinsurance,whichprovidescoverageforriskoflossordamagetothesatelliteduringconstruction.

30OnMarch1,2015,Ex‐ImBankissuedrevised“CRTITransactionandEnhancedDueDiligenceGuidance”toBankstaff.

(b) (4), (b) (5)

(b) (4), (b) (5)



23

fraudandcorruptionpreventionareoutlinedinseveralcoredocumentsincluding“TransactionDueDiligenceBestPractices.”31

Finding 1A: Although Ex‐Im Bank identified and mitigated many of the project specific risks of the transaction, the Bank did not sufficiently address the risk of the inexperienced and financially weak Sponsor‐Guarantor, NewSat.

Incompletingitsduediligence,Ex‐ImBankanditsadvisorsproperlyidentifiedtherisksinherentinprojectfinancing,aswellasrisksuniquetothesatelliteindustry,suchasriskoflaunchfailure,regulatory,markets,andtechnologyrisks.However,OIG’sreviewoftheBoardMemorandum,amendments,transcriptsandtransactiondocumentsindicatedthatEx‐ImBankstaffdidnotidentifytheinexperiencedandfinanciallyweakSponsor‐Guarantor,NewSat,asasignificantrisktotheProjectduringitsduediligenceprocess.

Inexperienced and Financially Weak Sponsor‐Guarantor

AtthetimeofformalapprovalbyEx‐ImBank’sBoardinJuly2012,NewSatwasasatelliteservicesandgroundteleportcompany—asatellitebandwidthresalebusinesswithtotalrevenuesandEBITDA32ofapproximately$28.6millionand$1.8million,respectively.33TheSponsor‐Guarantor’steleportbusinesswasprimarilyreliantontheminingboominAustraliaandUSmilitaryinvolvementinAfghanistan,bothofwhichutilizedtheteleportstorelaysatellitesignalstogroundpersonnelinremoteregions.Asdescribedearlierinthisreport,NewSat’srelianceonnon‐diversifiedcustomersprovedproblematic.TheconstructionandlaunchoftheJabiru‐1satellitewouldhavetransformedNewSatintoafirst‐timesatelliteowneranddirectsellerofsatellitebandwidth,substantiallyexpandingitscurrentbusinessmodelandrevenuebase.

Jabiru‐1’sprojectedcostofapproximately$620millionheavilyoutweighedthe valuationofNewSat’sexistingteleportbusinessassetsanditsfinancialcapacity

tosupporttheBorrower.34Equallyimportant,OIG’sinterviewsofformerNewSatstaffandboardmembersrevealedthattheSponsor‐Guarantorlackedsufficientmanagementdepth,technicalexpertise,andindependentboardmemberoversighttoproperlymanagealargescaleprojectfinancing.35FurtherinterviewswithBankstaffandexternalpartiesconfirmedthisfindingandattributedthe21‐monthdelayinfinancialclosingtoNewSat’sinabilitytomanagecontractualnegotiations,conductfinancialanalysis,andraisesufficientequitytofundtheProject.Moreover,theBank,initsBoard

31Ex‐ImBank’sTransactionDueDiligenceBestPractices,datedJanuary10,2008.

32EarningsBeforeInterest,Tax,DepreciationandAmortization.

33Ex‐BankBoardMemorandumdatedJune6,2012,p.22.

34Supranote8.

35OIG’sinterviewofaformerNewSatboardmemberconfirmedthecompanylackedsufficientmanagementresources.

(b) (4)



24

MemorandumdatedJune23,2015,stated,“fromtheoutset,NewSatexperiencedongoingdifficultyincomplyingwithcovenantsandconditionsprecedentinthecreditagreement(resultinginvarioustechnicaldefaults,whichtheLendersagreedtowaive…)mostlyduetolackofexperienceandpoorprojectmanagement.”36

TheSponsor‐Guarantor’sweakfinancialconditionandinabilitytosupporttheProjectbecameevenmoreapparentinFebruary2014whenNewSatadvisedtheLendersthatitsteleportbusinesswouldexperienceacashshortfallandrequiredadditionalequitytoaccountforashortageinworkingcapitalduetoadeclineinteleportrevenues.Thedeclineinrevenueswasattributedtoalossofcontracts,primarilywithkeycustomer

,aUS‐basedsatelliteserviceprovidertogovernmentrelatedmarketsintheMiddleEastandAfghanistan(seeFinding2Bforfurtherdiscussion).InitsApril2012report,theLenders’MarketAdvisor,Euroconsult,highlightedtheuncertaintyofthemilitarycommunicationsmarketintheregionasakeyriskbecauseoftheexpectedwithdrawalofUStroopsinAfghanistanbytheendof2014.37Thiswasconfirmedby CEOwhoacknowledgedtheriskassociatedwithtroopwithdrawalsintheregion.38

Ex‐ImBank’sLoanManualandprojectfinancebestpracticeshighlighttheneedforafinanciallysolventsponsor(s)withsufficientresourcestomeetongoingsponsorfundingrequirementsincludingoperationofaprojectfinancing.JSL’sfinancialstatementauditorrecognizedtheimportanceoftheSponsor‐GuarantortotheProject,stating“theabilityof[JSL]topayitsdebtsasandwhentheyfalldueisdependentupontheongoingsupportof[JSL’s]parententity[NewSat].”39

NeithertheBoardMemorandum,transcriptsnortheattendantdocumentsarticulatetheimplicationstotheriskprofileofthetransactionresultingfromaninexperiencedandfinanciallyweakSponsor‐Guarantor.Thediscussionsfocusedlargelyonthetechnicalstrengthofthecontractors(e.g.,LM,ArianespaceandMEASAT)andothercreditenhancements(seeFinding1Bforadiscussiononstructuralenhancements),withnoin‐depthdiscussionoranalysisofNewSatwithrespecttoexperienceandfinancialstrength.GiventheinformationavailableintheMarketAdvisor’sApril2012report,suchasthatreferencedabove,theBankshouldhavepaidcloserattentiontothelikelihoodoftheSponsor‐Guarantorachievingitsforecastedteleportandorbitalslotsrevenues,andtheviabilityoftheBorrower’soff‐takecontractsthatweredependentonthelaunchofthesatellite.

AlthoughthebasefinancialmodelwasadjustedtoreflectsomeoftheconcernsoutlinedintheEuroconsult’smarketanalysisregardingtheoff‐takecontracts,theinformation


37CommercialDueDiligenceAssessmentoftheNewSatJabiru1SatelliteProject,Euroconsult,April12,2012(“MarketAdvisor’sReport”),pp.6,22,30and72.

38Ibid.,p.89.

39JabiruSatelliteLimitedFinancialReportfortheYearEnded30June2013,Ernst&Young.

(b) (4)

(b) (4)



25

disclosedinthereport(e.g.,commentsontheoff‐takers)shouldhavebeenconsideredaredflag.Forexample,thereportstatesthat“Jabirufacesasignificantriskintermsofcustomerconcentrationwiththebusinessplanstronglydependingontheabilityofafewrelativelysmallandsecondtiercompanies,somewithlimitedfinancialresources,tofulfilltheircontractandpaymentobligations.Fullorevenpartialdefaultofafeworevenoneoftheexpectedearlycustomerscouldthusseverelycompromisethecompany’sbusiness.”40Ex‐ImBankwouldhavebenefitedfromscenarioanalysiswithrespecttotheSponsor‐Guarantor’sexistingteleportrevenuesgiventheBank’sownacknowledgementofthehigh‐risknatureofsatelliteprojectfinance(i.e.,“…relativelyweakerborrowersand/orsmallermarketplayerscanbeveryrisky”).Thisisofparticularimportancegiventherelianceon“asubstantialequitycontributionfromNewSatmadepriortoclosing...[andreliance]onBorrowercashflowssupportedbyotherNewSatcashflowsforrepaymentofdebt.”41

RECOMMENDATION 1A

IntheReportonMinerayMetaluricadelBoleoS.A.(OIG‐INS‐13‐01),OIGrecommendedthatEx‐ImBankconductacomprehensivereviewofitscreditanalysisandapprovalprocedureswithaviewtoimprovingitstransactionriskassessmentandriskratingprocessesfortransactionswithahigherriskprofile,toincludeafullriskassessmentofallprojectparties.Thisrecommendationisbeingimplemented.Inaddition,OIGrecommends:

Ex‐ImBankshouldreviseitscreditpoliciesforsatellitefinancingstobetterprotectitsinterestsagainsttheriskofnon‐completionduringthetimebeforeaprojectbecomesoperational.Inrevisingitspolicies,theBankshouldconsiderplacingmoreemphasisonthefinancialresourcesoftheprojectsponsorand/orrequiringappropriatemitigantstoprotecttheBank’sinterestsintheeventofprojectnon‐completion.Appropriatemitigantscouldincludeaperfectedsecurityinterestinprojectassetsduringconstruction,recoursetoacreditworthysponsor/guarantor,ortheuseofacreditenhancementsuchasastandbyletterofcredit.

Management Response:

PleaseseeAppendixA,ManagementResponseandOIGEvaluation.

40MarketAdvisor’sReport,p.73.




26

Finding 1B: The NewSat transaction structure did not adequately protect the Bank against the risk of the Borrower’s default under the satellite construction contract as it did not provide senior lenders with a secured interest in the underlying project assets during construction.

AlthoughEx‐ImBank’sBoardMemorandumstatedthattheJSLtransactionwasstructuredwithintheframeworkofa“standardandcustomaryprojectfinancetransactionwithacomprehensivesecuritypackage,”42infollowingcurrentmarketpracticesthetransaction’sstructuredidnotprovideasecurityinterestinthesatellitefortheLendersduringconstruction.ThetransactionstructureprovedineffectiveasaresultofNewSat’spaymentdefaultstothesatellitemanufacturer,LM.Inhindsight,theriskposedbyapotentialBorrowerdefaultunderthesatelliteconstructioncontractshouldhavebeenfurtherassessedandmitigatedgiventheinexperiencedandfinanciallyweakSponsor‐Guarantor.

Structural Enhancements Proved Ineffective

TheinitialBoardapprovaloftheJSLtransactionincludedseveralstructuralenhancements,includingan“equityinfirst”requirementbytheSponsor‐Guarantor,pre‐paidexposurefeeandcashsweeps.43However,thesefeatureswereweakenedovertimebyBoardamendmentspriortotheFinancialCloseDateonFebruary13,2014.44NewSatwasonlyabletoraiseaportionofthetotalequityrequiredbyfinancialclosetofundtheProject.Toaddressthisshortfall,theBankincreaseditsloancommitmentandloweredtheequityrequirement.TheBankalsorevisedthepaymentoftheexposurefeetoallowaportionofthefeetobepaidasanAnnualExposurePremium(“AEP”)andmodifiedtheProject’scashsweepfeaturestoacceleratethepaymentofdebtduringoperations.

Therevisionstothetransactionstructure,whichresultedinachangeinthedebttoequityratiofrom60/40to64/36,45andpartialpaymentoftheexposurefeeasanAEP,effectivelyincreasedtheBank’sriskexposuretotheProjectduringtheconstruction


43Pursuanttothe“equityinfirst”requirement,theSponsor‐GuarantormustfunditsequitycommitmentasaconditionprecedenttousageundertheEx‐ImBankfacility.The“cashsweep”mechanismisaprovisioninthecreditdocumentationthatrequiresexcessfundsattheProjecttobeappliedtooutstandingProjectdebt.Finally,Ex‐ImBankmodifiedtheupfrontpaymentoftheexposurefeetoallowaportionofthefeetobepaidasanAnnualExposurePremiumthusallowingtheBorroweradditionaltimetopaythefee.

44Supranote4.

45Theamended64/36debttoequityratioincludesNewSat’s assessedvalueforitsexistingteleportsandorbitalslotsasequity.ExclusionoftheSponsor‐Guarantor’sexistingteleportassetsasasourceofequitywouldchangetheratioto68/32.

(b) (4)



27

phase.46AlthoughtheenhancedcashsweepfeatureswouldessentiallyallowtheBanktocatchupthroughquickerrepaymentsandmaintainasimilarweightedaveragelifeoftheloan,thisfeaturewascontingentontheProjectreachingtheoperationphase.

Satellite Construction Contract

OnDecember8,2011,NewSatandLMenteredintoacontractforthedesignandconstructionoftheJabiru‐1satellite.Thecontractwassubsequentlyamendedseventimes.Amendmentstothecontractincluded,forexample,adjustmentstocertaincontractualterms(e.g.,commercialandpricing)asrequiredbytheLenders.

Asdiscussedabove,satellitefinancingsareuniquewithrespecttothetransferoftitleandriskofloss.AlthoughEx‐ImBankhada“first‐rankingperfectedsecurityinterestinallpresentandafter‐acquiredassets”ofJSLandeachNewSatcompany,47theBankdidnothaveasecuredinterestintheJabiru‐1satelliteduringconstruction.ThiswasduetothefactthattransferoftitleofthesatellitefromLMtoJLSwouldnotoccuruntilcompletionofthepre‐shipmentreviewofthesatellite.Aspermarketpracticeforsatellitetransactions,thetitleandriskoflossforasatellitetypicallytransferfromthemanufacturertothepurchaserdirectlypriortolaunchorafterin‐orbittesting/delivery.NeithertheBoardMemorandumnortheattendantdocumentsarticulatetheimplicationstotheriskprofileofthetransactionresultingfromtheBank’sinabilitytoperfectitssecurityinterestinthesatelliteduringconstruction.

ThelackofasecurityinterestinthesatelliteassetsunderconstructionprovedproblematicforEx‐ImBankwhenJSLdefaultedonitspaymentstoLM.ThesatellitemanufacturerexerciseditsremediesbyterminatingthedefaultedconstructioncontractwithNewSatandretainedtheunfinishedsatellite.48,49

RECOMMENDATION 1B

RecognizingboththeinherentriskofthesatellitesectoranditsstrategicimportancetothetotheUSeconomy,OIGrecommends:

Ex‐ImBankshouldcompleteareviewofitsfinancingpoliciesandstrategiesinthesatellitesector,includingariskreviewofitscurrentexposuretothesatelliteindustry,assessmentoftheimplicationsoftheJSLdefault,anddialoguewithkey

46Forprojectfinance,theconstructionperiodrepresentsahighperiodofriskbecausemostofaproject’scapitalexpendituresarepaidorincurredduringthisphase.


48OnDecember16,2014,LMissuedaNoticeofDefaulttoNewSatfornonpaymentof$21millionduefromJSL.Forfurtherdiscussion,seethe“TransactionHistory:PostClosing”sectionofthisreport.

49

(b) (4), (b) (5)



28

satellitemanufacturerstorevisitcurrentmarketpracticesregardingthelender’sinabilitytoestablishasecurityinterestinasatellitewhileitisunderconstruction.



PointofInquiry2:DidEx‐ImBankprovideeffectiveoversightandmonitoringduringthepre‐andpost‐closingphasesofthetransactioninconsiderationoftheProject’sheightenedriskprofile?

Applicable Standards

OIGreviewedvariousApplicableStandardsandfocusedonthefollowing:

1. Ex‐ImBank’spre‐closingguidelinesforprojectfinanceasoutlinedinChapter14:ProjectFinanceoftheBank’sLoan,GuaranteeandInsuranceManual,updatedJanuary2013(“LoanManual”);

2. Ex‐ImBank’spost‐closing(assetmonitoringandrestructuring)guidelinesasoutlinedinChapter22,Post‐OperativeMonitoringoftheLoanManual;

3. AssetManagementDivisionOperatingManual,March2009(“MonitoringManual”);

4. AssetMonitoringSystem,ReportOptimizationProjectOperatingManual(“AMSOperatingManual”),May19,2010,RevisedSeptember30,2013;

5. Ex‐ImBank’sSatelliteandTerrestrialTelecommunicationsFinancingPresentationandExecutiveSummary,July11,2011;

6. OMBCircularA‐123Revised,Management’sResponsibilityforInternalControl(EffectiveFY2006)(RevisedDecember21,2004)andGAO/AMD‐00‐21.3.1,November1999,StandardsforInternalControlsintheFederalGovernment;

7. Ex‐ImBankProjectCriteriaandApplicationInformationRequirementsfromAppendix14‐FoftheLoanManual;and

8. TransactionFinanceDocumentsincludingtheEx‐ImBankCreditAgreementavailabletoJabiru‐1project,asamendedandrestated,andtheCommonTermsAgreementasamendedandrestated(“CTA”).

Ex‐Im Bank: Pre and Post Closing Monitoring Procedures

Forprojectfinancetransactions,Ex‐ImBank’sStructuredandProjectFinanceDivision(“SFD”)isresponsibleforconductingduediligence,structuringthetransaction,andoverseeingtheclosingprocess.TheBank’sLoanManualdefinesthisprocessasthe



29

“Phase2evaluation.”Phase2beginswiththecompletionofduediligenceandendswiththefinancialclosingandsigningofallprojectfinancingagreements.50

SFDtransfersthecredittoAMDformonitoringwhenthefollowingconditionshavebeenmetafterfinancialclosing:

Creditisoperative,

Monitoringpackagehasbeenprepared,

Pre‐closingissueshavebeenresolved,and

Transactionisdisbursingcleanlywithoutanywaiversorpendingamendments.

Afterfinancialclosing,SFDensuresallpre‐closingissueshavebeenresolvedandthetransactionisdisbursingcleanlywithouttheneedforwaiversoramendments.IntheeventthatthetransactionhasnotbeentransferredtoAMD,SFDwouldberesponsiblefortheongoingmonitoringincludingtheannualriskratingassessment.

AccordingtotheBank’sMonitoringManual,theAssetManagementDivision(“AMD”)isresponsibleforpost‐operativemanagementofalltransactions.AMD’sresponsibilitiesincludemonitoring,structuring,andmanagingloansasspecifiedinChapter22oftheBank’sLoanManual.WithinAMD,theProjectandCorporatePortfolioManagementGroup(“PCPM”)isresponsibleforProjectFinancetransactionmonitoring.PCPMmanagesthetransactionthroughongoingassessmentsoftheoperatingenvironmentandfinancialconditionoftheborrowerandguarantors.PCPMresponsibilitiesincludeanumberofactivities,suchas:

Monitoringconstructionprogressandoperationresults,

Reviewingcreditwaiversandamendments,

Reviewingthevalueofcollateral,

RiskratingtransactionstomeasuretheBank’sriskexposureforlossreserves,

Restructuringdefaultedtransactionstoensurethehighestpossiblerecovery,and

SupportingtransactionsbyprovidingfeedbacktotheBank’sdivisionresponsiblefororiginationoftheloan.

TheSpecialAssetsControlGroup(“SACG”)withinAMDisresponsiblefortherestructuringofoperativecreditsforallnon‐aircrafttransactions.SACGworkswithPCPMwhentransactionsareidentifiedasimpaired,throughcreditsinpaymentdefaultorassetsthatarerateda‘9’oraboveontheBank’s‘12’pointriskratingscale.

50AccordingtotheLoanManual,“projectfinancetransactionsdifferfromotherprogramsinthatfinancingdocumentationisinnegotiationpriortoBoardauthorizationandupuntilfinancialclose.”



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Federal Agency Regulations for Internal Control

AsprescribedinOMBCircularA‐123Revised,Management’sResponsibilityforInternalControl,Ex‐ImBank“managementisresponsibleforestablishingandmaintaininginternalcontroltoachievetheobjectivesofeffectiveandefficientoperations,reliablefinancialreporting,andcompliancewithapplicablelawsandregulations.”51GAO’sStandardsforInternalControlintheFederalGovernmentstatesfurther“thatinternalcontrolactivitiesaretheactionsmanagementestablishesthroughpoliciesandprocedurestoachieveobjectivesandrespondtorisksintheinternalcontrolsystem.”52

Ex‐Im Bank Restructuring Guidelines

TheMonitoringManualcoversdifferentscenarios,includinga“restructuringorworkout”and“recovery.”TheManualdefines“restructuringorworkout”asthosesituationswhereAMDhasareasonablebeliefthatthefullnetpresentvaluecanbeachieved(i.e.,fullrecoveryoftheBank’sinvestment).Optionscoveredina“restructuringorworkout”ofatransactionincludeamortizationrescheduling,cashsweeps,additionalcollateral,andadditionsofoffshoreaccountstochangethetimingofrepaymentorserveasadditionalsourcesoffundsforrepayment.53

Incontrast,a“recovery”isdefinedassituationswhereonlyaportionofcashnetpresentvaluecanbesalvaged.RecoveryoptionslistedintheMonitoringManualincludedebtforequityshares,discountedsettlements,collectionactions,Ex‐ImBankdebtsales,recoverieslitigation,andrepresentationincourt‐supervisedrestructuringorliquidation.

Ex‐Im Bank Disclosure Requirements

Ex‐ImBankreliesupontransactionparticipantstoprovidelegitimateinformation,certifications,financialstatements,andexportdocumentsandtocomplywithallapplicablelaws—bothdomesticandforeign.TheBankalsoencouragestransactionparticipantstoemphasizetheircommitmenttolegalcompliancetotheiremployees,agents,vendorsandcontractors.Theserequirementsaretypicallyaddressedintheapplicationprocessandattendantdocumentation.

Transaction Finance Documents

TheFinanceDocumentscontainnumerouscontractualprovisionsthatprotectthefinancialinterestsofboththeObligorsandLenders.UsageoftheEx‐ImBankcreditfacilityispredicatedonthesatisfactionofspecificconditionsprecedentatfinancialclosingandateachsubsequentutilization.WithrespecttotheNewSatfinancing,

51Formoreinformation,seehttp://www.whitehouse.gov/omb/circulars_a123_rev.

52Formoreinformation,seehttp://www.gao.gov/assets/80/76455.pdf.

53AccordingtotheBank’sMonitoringManual,“aworkoutisbynatureacooperativeventurebetweenthecreditors,ontheonehand,andtheobligor,ontheotherhand.Still,itistobeexpectedthatallsidesinaworkoutwillseekmaximumadvantage.Consequently,alldecisionsandactionsshouldbebasedonensuringthehighestreasonablypossiblerecoveryofcapitaltotheBank,onarisk‐adjustedbasis.”



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conditionsprecedentareprovidedinboththeAmendedandRestatedCreditAgreementandtheAmendedandRestatedCommonTermsAgreement(“CTA”).ConditionsPrecedenttypicallyincluderepresentationsandwarrantiesmadebytheObligor(s)includingtheborrower,sponsor/guarantorandrelatedparties.AdditionalundertakingsrequiretheObligorstoprovidepromptnoticeofadefaultandmaterialadverseeffect.

Finding 2A: Ex‐Im Bank’s policies and practices for monitoring transactions during the time between Board approval and operative status are less developed than post‐operative monitoring procedures.

Transition of Monitoring Responsibility from SFD to AMD Can be Improved

Duringtheinspection,OIGobservedthatEx‐ImBank’spoliciesandproceduresfortheoversightofprojectfinancetransactionsthatremainwiththeoriginatingdivisionforanextendedperiodcanbeimproved.Forexample,unlikeAMD’sOperatingManualthatprescribesdetailedpoliciesandproceduresforpost‐operativemonitoring,structuringandmanagingoftransactions,guidanceinChapter14oftheBank’sLoanManual’sislimitedtothefollowingprovision:

“Shouldmonitoringremainwiththeoriginatingdivision,writtennoticewillbegiventotherelevantAMDMonitoringGroup.Theoriginatingdivisionwillthenberesponsibleforconductingriskratingre‐assessmentsshouldeventsorconditionsoccurthataffecttheoverallratingofthecredit.Ifaratingchanges,theoriginatingdivisionmustnotifytherelevantAMDMonitoringGroupofthechange.”

Absentwelldevelopedpoliciesandproceduresfortheoversightoftransactionsthatremainwiththeoriginatingdivisionforanextendedperiod,Ex‐ImBankcannotensureconsistencyinthemanagingandmonitoringofsuchtransactions.

WithrespecttotheJabiru‐1transaction,SFDmaintainedmonitoringresponsibilityforthetransactionfromfinancialclosingonFebruary13,2014,toformalAMDtransferonMarch25,2015.ThiswasduetothefactthatJSLcouldnotcomplywiththetechnicalcovenantsandrequiredwaiversofcertainprovisionsintheloandocumentationbeforetheLenderscouldprocessdisbursements.Asaresult,thecreditwasnotformallytransferredtoAMDuntilNewSatwasnearbankruptcy.AsSFDandAMDjointlyshareresponsibilityforprovidingtransactionoversight,earlierinvolvementofAMDstaffpriortoformaltransferwouldfacilitateamoreseamlesstransition.54ThisisparticularlyimportantinthosesituationswherethetransactionisnotproceedingsmoothlyandmayneedtoberestructuredpriortothetransfertoAMD.

54Generally,thetransferofatransactionfromtheoriginatingdivisiontoAMDshouldtakeplacewhenthetransactionisdeclaredoperativeandfinancingcanbeutilized(i.e.,nopre‐closingissues,transactionisdisbursingcleanlywithoutwaiversorpendingamendments).



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WiththeadventoftheRuddReportandrelatedstopindisbursementstoJSLinJuly2014,SFDandAMDworkedjointlytoaddressthesubsequentwaivers.TheearlierinclusionofAMDwasdonetomakesurethatthedivisionwasawareoftheissueswithrespecttotheJSLtransaction.Bydoingso,thishelpedtofacilitatethetransferofthecreditfromSFDtoAMDinMarch2015andwiththerestructuringoftheJSLtransaction.

Lack of Timeliness in Addressing Corporate Governance Issues

WhentheRuddallegationsweredisclosedtotheLendersinJune2014,theLendersagreedtostopdisbursementstoJSLandhiredaforensicauditor,FerrierHodgson(“FH”),toconductareviewofNewSat.FHconfirmedtheallegationsofcorporategovernanceissuesidentifiedintheearlierreports.Theinvestigationhighlightedandconfirmedthefollowingkeyareasofconcern:useofnon‐independentboarddirectors,inappropriaterelatedpartytransactions,andusageoffundsforpersonalexpensesbytheCEO.Forexample,relatedpartytransactionsbetweenNewSatandCrestaMotorYachtsforover$300,000in“executivemarketingandbusinessdevelopment”relatedtoJabiru‐1.55NewSatCEOAdrianBallintineisthemajorityownerandpresidentoftheadvisoryboardofCresta.ThecompanyisoperatedbyAdrianBallintine’sson,TimBallintine.

TheFHinvestigationofNewSat,arequirementofWaiver3,tookoverfourmonthstocomplete.Interviewedparticipantscitenon‐cooperationofNewSat,andinparticular,CEOAdrianBallintine,astheprimaryreasonforthedelayedtimeframe.ThetimingoftheinvestigationandLenderdeliberationswasanimportantfactorastheLendershadpreviouslyhalteddisbursementstotheBorrowerpendingcompletionoftheinvestigation.

Withnoaccesstothecreditfacilityandnofinancialsupportfromitsparent,NewSat,theBorrowerfailedtomakeinterimpaymentstoLMunderthesatelliteconstructioncontract,asdescribedmorefullyinthe“TransactionHistory:PostClosing”sectionofthisreport.LMissuedaNoticeofDefaulttoNewSatfornonpaymentbyJSLandceasedworkingonthesatellite.

Duringinterviewswithtransactionparties,certainparticipantsbelievedthatEx‐ImBankshouldhaveinsistedonquickerimplementationofcorporategovernancecontrolsattheSponsor‐GuarantorandtheremovalofitsCEO.Thismayhaveresultedinamoretimelyresolutionofthegovernanceissues,restoredLenderconfidenceandavoidedtheBorrower’sdefaultunderitsconstructioncontractwithLM.

SubsequentinterviewswithEx‐ImBankstaffcitedtheBank’sconcernwithLenderliabilityissues.56OthersnotedthatthefrequentturnoverofSFDmanagementattheBankaffectedthetimelinessofexecutiveactions.OIGlearnedthatduringtheperiod

55NewSatLtd.AnnualReport2014,fortheperiodendingJune30,2013,p.83.

56Lenderliabilityissuesmayarisewhenalendertriestoexercisecontrolorinfluenceoveraborrower’soperationsand/orassetsduringaperiodofrestructuringorinsolvency.



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fromJunetoDecember2014,theBank’sSFDexperiencedachangeinmanagementonfouroccasions.

Ex‐Im Bank Belatedly Downgraded the Project Risk Rating

Ex‐ImBankdidnotplacetheJSLtransactionontheBank’sofficial“WatchList”untilLMissuedaNoticeofDefaultonDecember16,2014.OnApril2,2015,Ex‐ImBankstaffdowngradedtheproject’sBCLriskratingfrom andmovedthetransactionfromthe“WatchList”tothe“ImpairedCreditList”.TheBankdidnotre‐ratethetransaction’sriskratinguntilAMDhadofficialmonitoringresponsibility.AsEx‐ImBankallocateslossreservesbasedonBCLriskratings,aninaccurateratingunderstatestheBank’sunderlyingportfoliorisk.

FortransactionsthatresideinAMDattheonsetofcreditmonitoring,monitoringdocumentations(re‐rating,disbursements,andtripreports)arestoredintheBank’sAssetMonitoringSystem(“AMS”).InthecaseoftheJSLtransaction,althoughtheBankprovidedsufficientdocumentationinatimelymannertotheOIGforreview,itwasobservedthatmonitoringdocumentationwasnotstoredinasystematicmannerduetothedualcreditmanagementresponsibilitiesfromSFDandAMD.ThiswasinpartduetothelackofclearmonitoringguidelinesforSFDinsuchsituations.

RECOMMENDATION 2A

Toenhancecertainoversightpoliciesandproceduresoftheoriginatingdivisions,OIGrecommends:

Ex‐ImBankshouldreviseitspoliciesformonitoringtransactionsduringthetimebetweenapprovalandoperatingstatustoprovideadditionalmonitoringcomparabletopost‐operativeprocedures.Inrevisingitspolicies,theBankshouldconsideradditionalrequirementsformonitoringwithinoriginatingdivisions,formalpoliciesandpracticesonresourcesharingandcoordinationbetweenoriginatingdivisionsandAMD,quarterlyreviewsoftransactionscurrentlyhousedintheoriginatingdivisions,andearlyinvolvementofAMDstaffortransfertoAMDifrestructuringisnecessarypriortooperativestatus.



Finding 2B: NewSat’s financial condition was deteriorating prior to closing, but Ex‐Im Bank did not identify these issues, and NewSat did not make timely disclosures of these issues as required by the finance documents.

Evidence that NewSat Did Not Make Timely Disclosure of a Material Decline in Revenues and Issued Inaccurate Representations to Ex‐Im Bank

Duringtheinspection,OIGfoundevidencethattheSponsor‐Guarantordidnotmaketimelydisclosureofamaterialdeclineinteleportrevenuesandissuedinaccurate

(b) (4)



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representationstotheBank.PursuanttothetermsandconditionsoftheFinanceDocuments,theBorrowerandNewSatwereobligatedtomakecertainrepresentationsandwarrantiesattheFinancialCloseDateonFebruary13,2014.57Specifically,NewSatwasrequiredtorepresentthatnomaterialadversechangeshadoccurredsincethemostrecentauditedfinancialstatements.

OnFebruary21,2014,oneweekafterrepresentingatfinancialclosingthatnomaterialadversechangeshadoccurredandalsothedayJSLreceiveditsfirstdisbursementofapproximately$41.1millionfromEx‐ImBank,NewSatannouncedasharpdeclineinoperatingprofitforthefirsthalfofFY2014(fromJuly1toDecember31,2013)andanegativeEBITDA.58Inaddition,theSponsor‐Guarantorannounceditwouldexperienceacashshortfallofapproximately$6millionbeginninginApril2014andrequestedtouse$10millionoftheBorrower’sequityanddebtreservestocoveritsimmediateoperationalneeds.TheBankdeniedtheSponsor‐Guarantor’srequest,requiringNewSattoraiseadditionalequity.TheLendersthenengagedtheirfinancialadvisor,WestEnd,tocompleteathoroughanalysisofNewSat’steleportbusiness.

WestEndconfirmedtheSponsor‐Guarantor’sliquidityshortfall,citingthelossofkeyUSmilitarycontractsbyitslargestcustomer, .59FormerNewSatstaffdisclosedininterviewswiththeOIGthat representedroughlyhalfofNewSat’sbusiness.Importantly,WestEnd’sreportrevealedthatNewSat’sdeclineinrevenuesandfinancialdeteriorationbeganbackinSeptember2013anditsliquidityposition(BankBalanceminusTradePayablesminusTaxLiability)hadbeennegativesinceDecember2013.

IninterviewswithformerNewSatstaff,OIGaskedwhymanagementfailedtoreporttheearningsshortfalluntilafterthefinancialclosing.NewSatstaffrespondedthatitcouldnothavealertedtheBankofitsliquidityproblemsaheadoffinancialclosingbecausetheinformationdidnotflowtotheappropriatedecisionmakerintimeduetoamanualaccountingsystemandaninadequatelevelofstaffingtoreviewthefinancialsaheadoftime.

Ex‐Im Bank Did Not Conduct a Follow Up Analysis and Valuation of the Sponsor‐Guarantor’s Teleport Business Prior to Financial Closing

Althoughfinancialclosingtookplace20monthsaftertheinitialBoardapproval,Ex‐ImBankdidnotconductafollowupanalysisandvaluationoftheSponsor’steleportbusinesspriortofinancialclosing.Asnotedabove,duringthe20‐monthperiod

57Supranote4.

58ComparedtothefirsthalfofFY2013,theSponsor‐Guarantor’sexistingteleportrevenuesdecreasedfrom$20.4millionto$16.6million,down19percent,andEBITDAdecreasedfrom$2.2milliontoanegative$0.9million,down142percent.

59

(b) (4)(b) (4)

(b) (4), (b) (5)



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betweenapprovalandclosing,thetransactionrequiredrestructuringduetotheBorrower’sinabilitytomeetcertainconditionsprecedent.TheBank’scurrentpoliciesandproceduresdonotrequireadditionalanalysispriortoclosing,evenifanextendedperiodoftimehaselapsedbetweentheanalysissupportingapprovalofthetransaction.However,inthiscase,anupdatedanalysiscouldhavedetectedthedeteriorationinthefinancialconditionofNewSatpriortothefinancialclosing.

RECOMMENDATION 2B

Toensureup‐to‐dateinformationontransactionandparticipantrisksisobtainedandthattheanalysissupportingtheapprovalofatransactionisstillappropriate,particularlywhentherehasbeenasignificanttimelagbetweenBoardapprovalandfinancialclosing,OIGrecommends:

Ex‐ImBankshouldreviseitspoliciestorequireafollowupanalysisofthetransactionriskratingandparticipantcreditworthinesspriortofinancialclosingwhencircumstancesindicateapossiblematerialchangesincetheBoardapprovalofthetransaction,suchas:(i)indicationsofdeteriorationofthefinancialconditionofkeyparticipantsand(ii)theobligor(s)failuretomeetcertainconditionsprecedent.

REFERRAL

RegardingevidencethattheSponsor‐Guarantor,NewSat,didnotmaketimelydisclosuresandmadeinaccuraterepresentationstoEx‐ImBank,OIGisreferringitsfindingsandsupportingdocumentationtotheBank’sOfficeofGeneralCounsel,theOIGOfficeofInvestigations,andtheAustralianSecuritiesandInvestmentsCommission(“ASIC”)fortheirconsiderationofcivilorcriminalremedies.

IV. CONCLUSION

TheJabiru‐1ProjectinvolvedtheconstructionofaKu/Ka/S‐bandsatelliteplusgroundequipment,launchandlaunchinsurance.Ex‐ImBankprovideda$300.5millionlong‐termdirectloanfortheconstructionofthesatellite,groundequipmentandlaunchinsurance.LMwascontractedtobuildthesatellite.Fromtheoutset,theSponsor‐Guarantor,NewSat,experiencedongoingdifficultyincomplyingwithcovenantsandconditionsprecedentinthecreditagreement.InJuly2014,theLendersstoppedfundingtotheProjectduetoallegationsofmisconductbycertainNewSatofficersanddirectors.InApril2015,theLendersinitiatedinsolvencyandbankruptcyproceedingsinanattempttopreservetheremainingvalueofthecollateral.However,theserestructuringeffortswereunsuccessfulandthepartiallycompletedsatellitebecamethepropertyofLM.Theprojectdefaultedonthe$139.1milliondisbursedbyEx‐ImBank,andsubstantialrecoveryappearsunlikely.

OIG’sinspectionproducedseveralkeyfindingsrelatedtothepointsofinquiry:

Point of Inquiry 1: DidEx‐ImBankconductsufficientduediligenceinaccordancewithBankpolicies,proceduresandindustrybestpractices?DidtheBankstructurethetransactiontoadequatelyprotectitsinterests?



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Finding 1A: AlthoughEx‐ImBankidentifiedandmitigatedmanyoftheprojectspecificrisksofthetransaction,theBankdidnotsufficientlyaddresstheriskoftheinexperiencedandfinanciallyweakSponsor‐Guarantor,NewSat.

Recommendation 1A:IntheReportonMinerayMetaluricadelBoleoS.A.(OIG‐INS‐13‐01),OIGrecommendedthatEx‐ImBankconductacomprehensivereviewofitscreditanalysisandapprovalprocedureswithaviewtoimprovingitstransactionriskassessmentandriskratingprocessesfortransactionswithahigherriskprofile,toincludeafullriskassessmentofallprojectparties.Thisrecommendationisbeingimplemented.Inaddition,OIGrecommends:

Ex‐ImBankshouldreviseitscreditpoliciesforsatellitefinancingstobetterprotectitsinterestsagainsttheriskofnon‐completionduringthetimebeforeaprojectbecomesoperational.Inrevisingitspolicies,theBankshouldconsiderplacingmoreemphasisonthefinancialresourcesoftheprojectsponsorand/orrequiringappropriatemitigantstoprotecttheBank’sinterestsintheeventofprojectnon‐completion.Appropriatemitigantscouldincludeaperfectedsecurityinterestinprojectassetsduringconstruction,recoursetoacreditworthysponsor/guarantor,ortheuseofacreditenhancementsuchasastandbyletterofcredit.

Finding 1B: TheNewSattransactionstructuredidnotadequatelyprotecttheBankagainsttheriskoftheBorrower’sdefaultunderthesatelliteconstructioncontractasitdidnotprovideseniorlenderswithasecuredinterestintheunderlyingprojectassetsduringconstruction.

Recommendation 1B:RecognizingboththeinherentriskofthesatellitesectoranditsstrategicimportancetothetotheUSeconomy,OIGrecommends:

Ex‐ImBankshouldcompleteareviewofitsfinancingpoliciesandstrategiesinthesatellitesector,includingariskreviewofitscurrentexposuretothesatelliteindustry,assessmentoftheimplicationsoftheJSLdefault,anddialoguewithkeysatellitemanufacturerstorevisitcurrentmarketpracticesregardingthelender’sinabilitytoestablishasecurityinterestinasatellitewhileitisunderconstruction.



Point of Inquiry 2: DidEx‐ImBankprovideeffectiveoversightandmonitoringduringthepre‐andpost‐closingphasesofthetransactioninconsiderationoftheproject’sheightenedriskprofile?

Finding 2A: Ex‐ImBank’spoliciesandpracticesformonitoringtransactionsduringthetimebetweenBoardapprovalandoperativestatusarelessdevelopedthanpost‐operativemonitoringprocedures.

Recommendation 2A:Toenhancecertainoversightpoliciesandproceduresoftheoriginatingdivisions,OIGrecommends:

Ex‐ImBankshouldreviseitspoliciesformonitoringtransactionsduringthetimebetweenapprovalandoperatingstatustoprovideadditionalmonitoringcomparabletopost‐operativeprocedures.Inrevisingitspolicies,theBankshould



37

consideradditionalrequirementsformonitoringwithinoriginatingdivisions,formalpoliciesandpracticesonresourcesharingandcoordinationbetweenoriginatingdivisionsandAMD,quarterlyreviewsoftransactionscurrentlyhousedintheoriginatingdivisions,andearlyinvolvementofAMDstaffortransfertoAMDifrestructuringisnecessarypriortooperativestatus.

Finding 2B: NewSat’sfinancialconditionwasdeterioratingpriortoclosing,butEx‐ImBankdidnotidentifytheseissues,andNewSatdidnotmaketimelydisclosuresoftheseissuesasrequiredbytheFinanceDocuments.

Recommendation 2B:Toensureup‐to‐dateinformationontransactionandparticipantrisksisobtainedandthattheanalysissupportingtheapprovalofatransactionisstillappropriate,particularlywhentherehasbeenasignificantlagtimebetweenBoardapprovalandfinancialclosing,OIGrecommends:

• Ex‐ImBankshouldreviseitspoliciestorequireafollowupanalysisofthetransactionriskratingandparticipantcreditworthinesspriortofinancialclosingwhencircumstancesindicateapossiblematerialchangesincetheBoardapprovalofthetransactionsuchas:(i)indicationsofdeteriorationofthefinancialconditionofkeyparticipants;and(ii)theobligor(s)failuretomeetcertainconditionsprecedent.





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APPENDIX A: MANAGEMENT RESPONSE AND OIG EVALUATION



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40



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OIG Evaluation

OnDecember21,2015,Ex‐ImBankprovideditsmanagementresponsetoadraftofthisreport,agreeingwiththefourrecommendations.TheresponseidentifiedtheBank’sactionstoaddresstherecommendations.OIGconsiderstheBank’sactionssufficienttoresolvethereportedrecommendations,whichwillremainopenuntilOIGdeterminesthattheagreeduponcorrectiveactionsarecompletedandresponsivetothereportedrecommendations.TheBank’smanagementresponsetothereportedrecommendationsandOIG’sassessmentoftheresponseareasfollows:

RECOMMENDATION 1A

Recommendation 1A: Ex‐ImBankshouldreviseitscreditpoliciesforsatellitefinancingstobetterprotectitsinterestsagainsttheriskofnon‐completionduringthetimebeforeaprojectbecomesoperational.Inrevisingitspolicies,theBankshouldconsiderplacingmoreemphasisonthefinancialresourcesoftheprojectsponsorand/orrequiringappropriatemitigantstoprotecttheBank’sinterestsintheeventofprojectnon‐completion.Appropriatemitigantscouldincludeaperfectedsecurityinterestinprojectassetsduringconstruction,recoursetoacreditworthysponsor/guarantor,ortheuseofacreditenhancementsuchasastandbyletterofcredit.

Management Response: TheBankagreeswiththisrecommendationandwillworkwithstafftoreviewandreviseitscurrentcreditpoliciesforsatellitefinancings.Staffwillbedirectedtorevisethesepolicieswithafocusonensuringthatbetterprotectionsareplacedagainsttheriskofnon‐completionduringthetimebeforeaprojectbecomesoperational.

Evaluation of Management’s Response: Management’sactionsareresponsive;therefore,therecommendationisresolvedandwillbecloseduponcompletionandverificationthattheactionshavebeenimplemented.

RECOMMENDATION 1B

Recommendation 1B: Ex‐ImBankshouldcompleteareviewofitsfinancingpoliciesandstrategiesinthesatellitesector,includingariskreviewofitscurrentexposuretothesatelliteindustry,assessmentoftheimplicationsoftheJSLdefault,anddialoguewithkeysatellitemanufacturerstorevisitcurrentmarketpracticesregardingthelender’sinabilitytoestablishasecurityinterestinasatellitewhileitisunderconstruction.

Management Response: TheBankagreeswiththisrecommendationandwilldirectstafftoreviewcurrentfinancingpoliciesandstrategiesinthesatellitesector.ThisreviewwillincludeariskreviewofcurrentexposuretothesatelliteindustryandwilltakeintoaccounttheimplicationsoftheJSLdefault.Additionally,staffwillrevisitwithkeysatellitemanufacturesthecurrentmarketpracticeregardingthelender'sinabilitytoestablishasecurityinterestinasatellitewhileitisunderconstruction.Further,wheretheBankcannotobtainasecurityinterestduringtheconstructionphase,staffwillseekothermitigantsduringthatphase.




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RECOMMENDATION 2A

Recommendation 2A: Ex‐ImBankshouldreviseitspoliciesformonitoringtransactionsduringthetimebetweenapprovalandoperatingstatustoprovideadditionalmonitoringcomparabletopost‐operativeprocedures.Inrevisingitspolicies,theBankshouldconsideradditionalrequirementsformonitoringwithinoriginatingdivisions,formalpoliciesandpracticesonresourcesharingandcoordinationbetweenoriginatingdivisionsandAMD,quarterlyreviewsoftransactionscurrentlyhousedintheoriginatingdivisions,andearlyinvolvementofAMDstaffortransfertoAMDifrestructuringisnecessarypriortooperativestatus.

Management Response: TheBankagreeswiththisrecommendationandwilldirectstafftoreviewandrevisepoliciesformonitoringtransactionsduringthetimebetweenapprovalandoperatingstatustoprovideadditionalmonitoringcomparabletopost‐operativeprocedures.Further,theBankhasestablishedacross‐divisionaldealteamprocess,wherebytheBankstafffromallinvolvedBankdivisions(Underwriting,Engineering,Policy,Legal,CreditRisk,Monitoring,andOperations)willcoordinatethroughoutthelifeofthetransaction‐throughunderwriting,documentation,andmonitoring.


RECOMMENDATION 2B

Recommendation 2B: Ex‐ImBankshouldreviseitspoliciestorequireafollowupanalysisofthetransactionriskratingandparticipantcreditworthinesspriortofinancialclosingwhencircumstancesindicateapossiblematerialchangesincetheBoardapprovalofthetransactionsuchas:(i)indicationsofdeteriorationofthefinancialconditionofkeyparticipants;and(ii)theobligor(s)failuretomeetcertainconditionsprecedent.

Management Response: TheBankagreeswiththisrecommendation.Asnotedabove,theBankhasestablishedacross‐divisionaldealteamprocesswhich,amongotherfunctions,willalsoprovidethatafollowupanalysisofthetransactionriskratingandparticipantcreditworthinessbeconductedpriortofinancialclosingwhenthereisevidenceofapossiblematerialchangesincetheBoardapproval.




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Table 3: Summary of Management’s Comments on the Recommendations

Rec. No.

Corrective Action: Taken or Planned

Expected Completion

Date60

Resolved:

Yes or No61

Open or

Closed62

1A. TheBankwillreviewandreviseitscurrentcreditpoliciesforsatellitefinancingstoensureprotectionsareinplacewithrespecttonon‐completionriskpriortoaprojectbecomingoperational.

6/30/2016 Yes Open

1B. TheBankwillreviewitscurrentfinancingpoliciesandstrategiesforthesatellitesector,toincludeariskreviewofitscurrentexposureandtheimplicationsoftheJSLdefault,revisitwithkeysatellitemanufacturersthecurrentmarketpracticeconcerningtheinabilitytoestablishasecurityinterestinasatelliteduringconstruction,andseekothermitigantswhereasecurityinterestcannotbeobtainedduringtheconstructionofasatellite.

9/30/2016 Yes Open

2A. TheBankwillreviewandreviseitsmonitoringpoliciesfortransactionsduringthetimebetweenapprovalandoperatingstatustoprovideadditionalmonitoring,withcontinuedcoordinationoftheBank’scross‐divisionaldealteamthroughoutthelifeofthetransaction.

6/30/2016 Yes Open

2B. TheBank’scross‐divisionaldealteamwillprovidefollowupanalysisofatransaction’sriskratingandparticipantcreditworthinesspriortofinancialclosewhenthereisevidenceofapossiblematerialchangesinceBoardapproval.

6/30/2016 Yes Open

60Ex‐ImBankOIGhasrequestedtargetcompletiondatesforeachoftheoutstandingrecommendations.TheBankprovidedthetargetcompletiondatestoadraftofthisreport.

61“Resolved”meansthat(1)Managementconcurswiththerecommendation,andtheplanned,ongoing,andcompletedcorrectiveactionisconsistentwiththerecommendation;or(2)Managementdoesnotconcurwiththerecommendation,butalternateactionmeetstheintentoftherecommendation.

62UpondeterminationbytheEx‐ImBankOIGthattheagreed‐uponcorrectiveactionhasbeencompletedandisresponsivetotherecommendation,therecommendationcanbeclosed.



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APPENDIX B: INSPECTION METHODOLOGY Aspartofitsreview,theOIG’sOfficeofInspectionandEvaluation(“OIE”)employedacombinationofquantitativeandqualitativetechniques.TheOIEteamutilizedthefollowingtechniquesduringtheresearchandfieldworkphases:

1. Reviewedthetransaction’sfinancialandlegaldocuments,internalEx‐ImBankandexternalconsultantreportsandcorrespondencerelatedtothetransaction.

2. InterviewedEx‐ImBankstafffromStructuredandProjectFinanceDivision,theAssetManagementDivision,Engineering,theOfficeofGeneralCounselandOperations.

3. Interviewedexternalpartiesincludingrepresentativesoftheexporter,financiers,legaladvisor,financialadvisor,marketadvisor,technicaladvisor,NewSatadministrator,NewSatreceiver,financialadvisorduringbankruptcy,formerNewSatstaff,USgovernmentofficialslocatedinAustralia,andAustralianauthorities.

4. Analyzedthetransaction’sbudget,disbursementrequests,procurementrecords,invoicesandpaymenthistory.

5. Reviewedpublicandopensourcedocuments,pressreleasesandrelated‐partyanalyses.

6. ConductedonsiteinterviewswithexternalpartiesinSeptember/October2015oftheJabiru‐1ProjectinMelbourneandSydney,Australia.

Toaddresstransactionspecificissuesasdescribedaboveunder“InspectionScope,”thefollowingadditionalresearchandfieldworkwasconducted:

1. ResearchedSatelliteindustrybackgroundandtrends.

2. ReviewedotherEx‐ImBankSatellitetransactionswithrespecttotheirsecurityinterestsandcollateralpackage.

3. ResearchedProjectFinancebestpractices,especiallyregardingsponsor/guarantorstrength.

ForadditionaldetailsoninterviewsconductedduringthefieldworkphaseoftheinspectionseeTable4below.



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Table 4: OIG Interviews During Fieldwork Phase (Confidential and Proprietary Information)

Entity Timeline

Ex‐ImBankStaff InitialInterviews:August2015OtherLenders/Bank–COFACE August2015Exporter–LockheedMartin September2015LegalAdvisor–Allen&Overy August2015FinancialAdvisor–WestEndAdvisory August2015MarketAdvisor–Euroconsult August2015TechnicalAdvisor–SPIAdvisory August2015Administrator–PPBAdvisory August2015Receiver–McGrathNicol August2015FinancialAdvisorduringBankruptcy–PeterJ.Solomon September2015Sponsor‐Guarantor–formerNewSatStaff August2015USEmbassyinAustralia September2015AustralianAuthorities‐ASIC September2015



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APPENDIX C: JSL TRANSACTION TIMELINE (b) (4), (b) (5)



47

(b) (4), (b) (5)



48

(b) (4), (b) (5)



49

(b) (4), (b) (5)



50

(b) (4), (b) (5)



51

(b) (4), (b) (5)



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APPENDIX D: EX‐IM BANK’S SATELLITE PORTFOLIO

Table 5: Satellite Portfolio (FY 2010 – 2015) (Confidential and Proprietary Information)

Deal No. and

Borrower63

Authorized Date

Authorized Amount

AP084578XX‐Hispasat,S.A.

12/10/2009 $160,560,390

AP084271XX‐Avanti

CommunicationsGroup,Plc

12/18/2009 $215,621,649

11/28/2012 $6,657,868

AP084968XX‐SesSatelliteLeasingLtd

11/18/2010 $158,004,263

AP085503XX‐HispasatCanarias,

S.L.U.12/9/2010 $228,286,420

AP085168XX‐InmarsatS.A. 12/16/2010 $700,000,000

AP085665XX‐AzercosmosOJSCO 4/27/2011 $116,615,338

AP085499XX‐EutelsatSa

11/3/2011 $66,243,347

AP084912XX–MinistryofFinance

ofMexico7/12/2012 $921,830,504

AP086539XX–JabiruSatelliteLtd.

7/19/2012 $281,110,000

1/17/2013 $13,220,000

2/10/2014 $9,869,000

AP084837XX–Governmentof

Vietnam9/27/2012 $118,081,740

AP083531XP‐AsiaBroadcastSatellite2

Ltd.11/15/2012 $179,609,546

AP086918XX‐AsiaBroadcastSatelliteHoldingsLtd.

11/15/2012 $291,060,659

AP087365XX‐HispasatCanarias,

S.L.U.1/17/2013 87,149,423

63Ex‐ImBank“fullycancelled”twotransactions,AP084837XX‐GovernmentofVietnamandAP088429XX‐InnovaS.A.deR.L.deC.V.

(b) (7)(E)

(b) (4), (b) (5)



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Table 5: Satellite Portfolio (FY 2010 – 2015) (Confidential and Proprietary Information)

Deal No. and

Borrower63

Authorized Date

Authorized Amount

AP086677XX‐AsiaSatellite

TelecommunicationsCoLtd.

5/30/2013 $343,292,904

11/26/2013 $2,231,470

AP087586XX‐SpaceCommunicationLtd.

8/23/2013 $105,436,551

11/1/2013 $618,752

AP086418XX‐BulgariaSatAd.

12/12/2013 $150,542,286

5/13/2015

AP088429XX‐Innova,S.DeR.L.De

C.V.2/20/2014 $79,583,800

AP088567XX‐InmarsatGlobal

Limited7/14/2014 $185,907,209

AP088346XX‐ViasatTechnologies

Limited9/29/2014 $524,929,198

Total $4,950,920,031Source: Ex‐Im Bank ERS Report as of September 30, 2015, and Annual Reports for fiscal years 2010 – 2014

(b) (4), (b) (5)

(b) (4), (b) (5)



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APPENDIX E: SOURCES AND USES OF FUNDS(b) (4), (b) (5)



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(b) (4), (b) (5)



56

ACKNOWLEDGEMENTS ThisreportwaspreparedbytheOfficeofInspectionsandEvaluations,OfficeofInspectorGeneralfortheExport‐ImportBankoftheUnitedStates.SeveralindividualscontributedtothisreportincludingLawrenceWielinski,Inspector,DanielWong,Inspector,JenniferFain,DeputyAIGIE,andMarkThorum,AIGIE.

OfficeofInspectorGeneralExport‐ImportBankoftheUnitedStates811VermontAvenue,NWWashington,DC20571202‐565‐3908http://www.exim.gov/about/oig

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