Undersea Fiber Cable Provider Bankrupt – (December 23, 2019, 2:43 PM EST) — The owner of a 6,200-mile undersea fiber optic cable hit Chapter 11 late Sunday in New York, saying that an underwhelming number of customer contracts rendered it unable to make payments on its $150 million in secured debt obligations.
In a declaration from Seabras 1 US LLC Chief Financial Officer Roger Kuebel, the company said its high-speed data transmission cable that runs from New York City to São Paolo, Brazil, has not attracted high-value usage contracts as predicted and is instead relying on short-term leases that don’t bring in as much money.
The undersea cable was placed into service in August 2017, but title to the transmission infrastructure resides with the builder, Alcatel Submarine Networks, under an engineering, procurement and construction contract, with about $7 million still owed by Seabras before it gains title, Seabras said.
Seabras and its direct parent company, Seabras 1 Bermuda Ltd., also a debtor, have no employees or operations, outsourcing management of the transmission network to its nondebtor affiliate, Seaborn Management, Kuebel said in the declaration.
When it commissioned the construction of the cable, Seabras anticipated entering into indefeasible rights of use with customers, which typically require large, upfront customer payments in exchange for long-term access to the cable, the declaration said.
Instead, shifts in the undersea telecommunications industry and unplanned competition led to an increase in short-term leases of one or two years, which typically come with monthly payments from customers, Kuebel said.
“For the company, the consequences of this changed market meant that the original amortization schedule and maturity date contemplated under the [secured debt facility] no longer reflected the reality of the company’s business or industry,” the declaration said.
The secured debt facility, which has more than $149 million outstanding, was issued by Natixis to fund construction of the cable, Kuebel said. The debt is secured by liens on all of Seabras’ assets.
Seabras was unable to make a required payment on that debt in September 2019, and according to Kuebel’s declaration, it wouldn’t have been able to make an $11 million payment due in March 2020.
As customer receipts come in throughout 2020, the company said it would be able to make those payments by the end of 2020 but would not be able to pay further commitments as they come due.
The case is being filed to effectuate a restructuring of Seabras’ debt, and a statement from the company Monday indicated that a sale or liquidation of its assets is not being contemplated.
“Seabras Bermuda anticipates filing its proposed restructuring plan in the near term and working closely with its secured lenders to fashion a plan to address its debt situation and emerge as a vibrant, healthy business,” the statement said. “The companies do not anticipate, nor do they wish to explore, any sale efforts through the processes contemplated by the filings.”
The statement indicated Seabras will complete its restructuring and emerge from bankruptcy in the second quarter of 2020.
The company plans to file a typical slate of first-day motions including requests to jointly administer the proceedings of the two debtors and to use its lender cash collateral to fund the case, which has been assigned to U.S. Bankruptcy Judge Stuart M. Bernstein. As of Monday afternoon, no first-day hearing had been scheduled.
Seabras 1 is represented by Robert G. Burns, Mark Dendinger and Joshua D. Neifeld of Bracewell LLP.
The lead case is In re: Seabras 1 US LLC, case number 19-14006, in the U.S. Bankruptcy Court for the Southern District of New York.