24 April 2009
Arlington, VA - Chesapeake Analytics Corp. of Arlington VA is providing the following analysis of this week's issue of $355 million in senior secured notes by DigitalGlobe (NYSE: DGI), an imaging satellite owner/operator in Longmont, Colorado.
With the company's largest shareholder Morgan Stanley (NYSE:MS) handling the debt issue, the company sold $355 million of 5-year notes with a junk-rating of BB from S&P. The notes had an effective yield of 11.5%. The company is likely to use the proceeds to repurchase higher-cost debt outstanding such as the $40 million in senior subordinated unsecured notes with a rate of 14.75% it issued in February of 2008.
The company is expected to use the balance of the proceeds to finish construction, testing and launch of its next imaging satellite WorldView-2, tentatively scheduled for early fall of this year. The company holds a launch slot on a Boeing (NYSE:BA) Delta II rocket with a manifest date of September 9, 2009. The telescope and camera for the satellite was provided my ITT's (NYSE:ITT) defense unit, while Ball Aerospace (NYSE:BLL) is building the bus and integrating the satellite. Macdonald Dettwiler (TSE:MDA) of Vancouver, Canada builds the ground systems for DigitalGlobe. The total on-orbit system cost of the satellite is estimated to approach $500 million.
WorldView-2 is crucial for the company, as it seeks to diversify its revenues from a single US military customer, the National Geospatial Intelligence Agency (NGA). The firm's WorldView-1 imaging satellite was constructed to NGA's specifications, who cost-shared on its construction. In 2008 NGA represented 74% of the firm's 2008 revenues, a figure steadily increasing from 2006 and 2007. Experts speculate that DigitalGlobe's supply contracts with NGA may consume over 90% of the WorldView-1 satellite's collection capacity over certain strategic hot-spots around the world, leaving little imagery to sell to commercial clients in areas where demand for such imagery runs highest and it can draw a premium price. Moreover, WorldView-1 collects images only in black-and-white, which may satisfy the NGA, but makes the imagery much less desirable for commercial users. WorldView-2 is fully color, and can collect imagery in 8 multispectral bands, allowing for automated discrimination of surface materials. With the extra collection capacity of WorldView-2, the company will be able to sell direct down-link capabilities to foreign groundstation operators, a business model that will be highly accretive to revenue and profits.
In April of 2008, DigitalGlobe filed an S-1 registration with the SEC in preparation for an initial public offering. Competitor GeoEye (NASD:GEOY) is already public. However, the IPO window has been firmly closed until the last few weeks. The buoyant aftermarket for Rosetta Stone's (NYSE:RST) stock following their recent IPO has renewed hope that DigitalGlobe can get their IPO out. Largest shareholder Morgan Stanley would certainly like to see its long-held investment in the firm turned liquid. Coupled with the stellar financial numbers DigitalGlobe posted in 2008, with handsomely positive trends over 2006 and 2007, an IPO may be hard to resist. The 2008 financials of DigitalGlobe are downright gaudy. Net income of $53.8 million represented 19.5% of their 2008 revenues of $275 million. 2008 revenues were 81% higher than in 2007. Meanwhile 2008 adjusted EBITDA of $167 million represented a stratospheric 61% of revenues. Rumors on Wall Street persist that an IPO may follow close on the tails of last week's successful debt road-show. If MS can't get this IPO out, then, like, wow!
For more information, contact Edward A. Jurkevics, Principal Analyst, Chesapeake Analytics Corp. at (703) 525-6730.
Disclosure: No Positions
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.