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Sea Launch ' A Unique Business and a Unique Reorganization

By ALM Staff | Law Journal Newsletters |
January 26, 2011

Sea Launch Company, LLC (“Sea Launch”), through its affiliates, provided a unique service ' the launching of heavy commercial satellites (4,000-6,000 kg) from a floating platform on the equator in the Pacific Ocean. Like something from a James Bond movie, Sea Launch is a relic of the Cold War ' a joint venture formed by Boeing, a Russian rocket manufacturer (RSC Energia), two Ukrainian rocket manufacturers (Yuzhnoye and Yuzhmash), and a Norwegian ship-building company (Aker). With encouragement from the U.S. government in the hope that a commercial rocket program would employ Russian (and Ukranian) rocket scientists (reducing the likelihood of proliferation to Iran, North Korea and other less savory jurisdictions), the program sought to achieve geosynchronous orbit (at approximately 22,000 miles above the Earth) in the most cost-effective and fuel-efficient manner possible. Sea Launch, conceived in the early 1990s and established in 1995, achieved 27 successful sea-based launches from 1999 to 2009.

Sea Launch's international ownership and unique capital structure (almost exclusively “partner debt”) and business model (utilizing a series of treaties between the United States, Russia and the Ukraine) engendered a unique reorganization process in that, although the debt was well in excess of $2.5 billion, Sea Launch had less than 150 creditors. The creditors included the contingent, unliquidated claims of customers in connection with future launches, necessitating separate negotiations with each customer as a part of the reorganization, and a unique and perverse tax issue arose at the end of the reorganization that could have required Sea Launch to withhold significant sums in respect of cancellation of indebtedness income due to a rarely invoked provision of the Tax Code.

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