Revenues are up since Russia invaded Ukraine; while some of those images are distributed freely, the US Department of Defense and other business clients pay for access to Maxar’s surveillance.

Rising public awareness of those services dovetailed with a new contract with the DOD’s National Reconnaissance Office (NRO) last month.

The agreement is the largest commercial imagery acquisition contract the NRO has ever given, and Maxar was awarded the largest portion of it.

Maxar is raising a $500m five-year SSN and a $1.5bn TLB, alongside a new $500m revolver.

Proceeds will refinance its $1bn 9.75% secured notes due December 2023 and a $2bn TLB due in October 2024. Maxar’s current revolver matures in 2023.

Price talk on the loans started at SOFR+CSA+ 400bp-425bp at an OID of 96, with commitments due June 9. The notes are whispered in the low-to-mid 7% region, sources said.

That represents a sizeable new issue concession, but also significant interest savings for the company.

“They don’t want that 2023 maturity to become current and they’re potentially saving some 225bp on the coupon,” said one investor looking at the deal.

These potential savings show how far Maxar has come since it last tapped the market. But while its Ukraine images are making it something of a household name, the credit still carries significant risks.

It has a heavy cash burn, has struggled with delayed satellite launches recently, and faces increasing competition from newer space imagery companies.

On the up

When Maxar issued its 9.75% notes, back in 2019, the company was in a much tougher spot than it is today. Those notes priced at a 98 OID for a 10.36% yield.

The company’s share price had fallen as low as $4 on underwhelming earnings. Defective components had delayed the construction of several satellites, and one of its existing satellites suffered a mission-ending hardware failure. The CEO eventually resigned.

“The company was seeing a trough in orders in its satellite manufacturing business and losing high-skilled employees,” said Austin Moeller, an analyst who covers Maxar at Canaccord Genuity. “There was a lot of risk to the company at the time.”

Things have since improved, as the journey of the stock price shows. Maxar’s revenue was $1.77bn in 2021, compared to $1.66bn in 2019; adjusted EBITDA was $424m, up from $416m (see full financials here on 9fin).

The new Defense Department contract will help sustain that momentum: it is a 10-year deal worth $300m annually for the first five years (similar to its previous contract with the same department) with an option to increase to $340m per year thereafter.

When Maxar gets its six-satellite Legion network into orbit over the next year, it will have a greater capacity to collect and sell data and images.

The contract includes some flexibility to increase the NRO’s utilization of those new satellites once they become operational. Maxar’s management has said this could lead to tens of millions more in revenue within the first five-year period of the contract, according to a research note from Canaccord Genuity.

Indeed, equity analysts at BofA estimate that sales could increase to $1.95bn and adjusted EBITDA to $568m by 2024. JP Morgan analysts are even more bullish, calling for those levels by the end of 2023.

Houston, we have a problem

Despite those rosy projections, execution risk looms large.

Maxar has already delayed the launch of its first two Legion satellites multiple times. The latest launch window is scheduled for September, via Elon Musk’s SpaceX.

The delays are due to testing procedures (as opposed to design or hardware issues) but nonetheless, they are a reminder of the risks facing any space-centric company, the JP Morgan analysts wrote.

Furthermore, while Maxar may have won the largest portion of the NRO contract, two newer competitors were also granted portions — in an area where Maxar was previously the only provider.

“Spreading the award across three players does not come as a surprise, but officially marks the end of Maxar’s monopoly position,” wrote the BofA analysts.

BlackSky was awarded $35.9m for the first two years of its contract, and Planet Labs was awarded a contract for an undisclosed sum.

BlackSky’s satellites can capture higher-resolution images than Maxar’s, and do so more frequently. However, Maxar can still collect more images on each pass compared to its peers, said Moeller at Cannaccord.

Additionally, building and launching satellites is not a cheap endeavor, and Maxar will need the cash to sustain those projects. Capex was $234m in 2021, up significantly from $34m in 2019.

Maxar and BofA, which is lead arranger for the refinancing, declined to comment. RBC, which is leading the TLB, could not be reached for comment.