One satellite provider wants to initiate bankruptcy proceedings against it By Ahmad Hathout When Xplore announced on June 3 an arrangement to raise new money to fund its expansion of 5G and fibre networks throughout rural communities across the country, the news belied an underlying tension: the rural service provider had defaulted on millions of dollars in monthly payments owed to satellite service providers, who are now asking an Ontario court to force it to pay them back or else allow them to cut services. But there’s an obstacle: On that same June 3 day, an Ontario Superior Court judge granted Xplore a requested preliminary interim order (PIO) that effectively puts a stay on proceedings against the debt-ridden company, including from satellite providers Telesat, Hughes, and ViaSat. The satellite providers are peeved for more reasons than just not being paid for services they must continue providing; they say they weren’t even notified about Xplore’s intention to file for the PIO because it was made on an ex parte basis – meaning it was done without notice to some affected parties, namely … the satellite companies. All they got, they say, was the order from the court, despite being named as parties to which Xplore was protecting itself against. The order, according to the satellite companies, effectively bars them from exercising their right to terminate services to Xplore for failure to pay. But this hasn’t stopped at least Telesat and Hughes – both business partners of what was then called Barrett Xplore since 2009 – from asking the court to allow them to force payments on the full amounts owed to them or else allow them to cease offering their services, which affect some 80,000 Xplore customers still on satellite internet. Hughes, which provides connectivity to 50 per cent of Xplore’s satellite customers, is even asking the court to allow it to file bankruptcy proceedings against Xplore so that it can recoup at least $29.8 million in alleged missed payments. Telesat said Xplore has allegedly defaulted on payments owed to it in the amount of approximately $5.6 million for satellite capacity and gateway service at the time of the PIO. Xplore said the PIO would allow it to continue providing full service while it negotiates a recapitalization structure, which is intended to reduce its debt and annual cash interest expenses, while providing the cash flow and flexibility to build out its fixed wireless, wireline and satellite segments to satisfy deadlines for connectivity – including roughly 1.5 million Canadian households and business locations that currently only have access to low speed or no wired broadband. The framework and terms of that structure were agreed in principle with the lenders holding the majority of the debt obligations, according to an Xplore affidavit. When New York-based private equity firm Stonepeak acquired a controlling stake in Xplore in 2020, the provider obtained financing under a $1.25-billion first lien term loan, which was used to repay its existing term loan and on capital expenditures and other costs. In October 2021, a second lien credit agreement was entered into, which provided another $1.7 billion. That money was used to refinance the first lien term loan and to fund the business and its projects. The money was taken under variable interest rates during a period of low borrowing costs, the affidavit notes, but higher interest rates over the last two years meant the business had become more costly to operate. To be precise: $166 million in interest charges in the period ending on December 31, 2023, according to the company. As such, Xplore missed interest payments due on both lien term loans in the amount of $44 million that were due in March. “Xplore Inc.’s capital structure and debt servicing costs are no longer sustainable, and are adversely impacting its ability to achieve its current and long-term business objectives,” the Xplore affidavit said. Xplore negotiated its way out of those defaults by offering an amount of secured debt, common shares in Xplore, rights to new equity issued by the company, and entitlements under a spectrum monetization plan in exchange for releasing its obligations. As part of that strategy, in November 2023, Xplore transferred some assets in its fibre and fixed wireless businesses to an indirect subsidiary called Xplore Fibre L.P. The idea was to separate those assets from encumbrances – i.e. the debt – and allow it to raise money against it to fund the fibre business and stabilize the company’s balance sheet. Meanwhile, the company has benefitted from what it called a “supportive regulatory environment,” receiving grants from connectivity programs from the Ontario, Quebec and federal governments. That leaves the satellite business, which Xplore says generates more than a quarter of all its revenue. In its original application for the PIO, Xplore said the satellite business “is no longer economical given the decline in subscribership and the substantial fixed costs” under its agreements with the satellite companies. Part of that subscriber decline has been attributed to the emergence of foreign competitors, namely SpaceX’s Starlink, which entered the market before Xplore could use Hughes’s more advanced Jupiter 3 satellite, which is the only one of the three – Jupiter 1 and 2 being the others – that uses faster 5G technology. That satellite was originally slated to launch in 2021 but was pushed back to this year. “A combination of the Jupiter 3 delay and the Company’s legacy 4G satellite service offering has impacted the ability of the Satellite Business to compete with foreign industry players, such as Starlink, that have expanded satellite internet offerings in Canada,” Xplore said in its original PIO application, adding it believes it has offsetting claims against Hughes for the problems caused by the delay in Jupiter 3’s launch. Despite this, Xplore stipulates in its application materials that it will pay back the satellite providers from the net profit it makes from its satellite customers for an indefinite period. Telesat said, since the PIO, it has probed Xplore officials about that promise, which it said is different than the agreed arrangement. The communications allegedly show that Xplore can make some, but not the full, payments. Xplore “indicated that ‘the stepdown in the monthly payment is a result of anticipated reduction in subscriber revenue on a month-to-month basis,’” according to an affidavit by Michele Beck, senior vice president of Canadian sales for Telesat. “In Telesat’s view, this amounts to unfair and differential treatment of the Satellite Providers, given that Xplore intends to continue to satisfy all of its other obligations in the ordinary course, including its obligations to trade creditors and employees, while unilaterally doing violence to the existing arrangements with Telesat and the other Satellite Providers by attempting to alter a fundamental component of such arrangements,” Telesat said in its complaint. “Xplore is effectively taking the benefit of the stay as provided for under the Preliminary Interim Order, which prevents Telesat from exercising its contractual rights and remedies, while seeking to impose on Telesat rates and terms of payment that were never negotiated or agreed upon between Telesat and Xplore,” it added. Telesat is asking the court to force Xplore to make full payment of the amounts owing to it for services provided from and after June 3; require Xplore to post security in those amounts; and to force Xplore to provide a written response to Telesat setting out Xplore’s plan to pay back the outstanding amounts owed prior to the PIO. Hughes filed a motion in July to vary the PIO to force Xplore to pay out what it is due, for the company to post security in those amounts, and to allow it to file an application for a bankruptcy order against Xplore. According to court documents, the 15-year business relationship between Hughes and Xplore took a sour turn when the latter started seeing financial trouble in March 2023. Hughes said it agreed to defer some of those monthly lease payments plus interest through 2023 and 2024 and until April 2025 to ease the burden. But since January of this year, Xplore has defaulted on its monthly obligations, which Xplore itself acknowledges. Hughes said it sent several letters to Xplore representatives about the amounts owing and warned that the company would suspend services to the company if payments were not made. According to Hughes, it had the right to terminate the agreements on the J1/J2 satellite and equipment agreements, which it planned to do when negotiations on payment weren’t going anywhere. “Had Hughes not been led to believe that Xplore was engaged in good-faith negotiations, Hughes would have exercised its legal rights under the Satellite Agreements,” it said in its complaint, alluding to its right to terminate. “As a result of the Preliminary Interim Order, Hughes has been deprived of its contractual right to terminate the J2 Agreement, the J1/J2 Service Agreement, and the Equipment Agreement; and its contractual right for payment in exchange for goods and services,” Hughes claims in its request to vary the stay, which it claims should never have been granted because the company is insolvent. “Further, Xplore has not demonstrated that it will be solvent following the completion of the proposed plan of arrangement, nor has it addressed its plan to cure payment defaults under the Agreements,” Hughes added. “Rather, Xplore has effectively admitted that its indebtedness to Hughes will continue to grow during currency of the Stay Order, resulting in significant prejudice and unfairness to Hughes.” Requests for comment to representatives at Xplore, Telesat and Hughes were not returned. To view the full content, please sign up for a subscription. Already a member? Log in. Email Address