In The Press

A new funding model


Seaborn Networks has discovered an alternative approach to funding subsea cables. Alex Hawkes talks to the company’s chairman and CEO about the progress of Seabras-1.

Investment has poured into subsea cable infrastructure in Latin America over the last 24 months. No less than four new-build projects have been announced, each promising to usher in a new era of connectivity and redundancy for the region.

Among those is Seabras-1, which is aiming to become the first direct route between New York and São Paulo. The 10,500km route is scheduled to go live in early 2016 with 40Tbps. It is being championed by Seaborn Networks, which is rapidly laying claim to a number of industry firsts in the subsea cable segment.

The Seaborn Networks team boasts extensive experience in designing, building and operating many of the world’s largest submarine networks. The company goes as far as to claim that their combined subsea cable experience represents more than 75 cable landing stations, 250 global points of presence and 250,000 km of submarine cable; more than six times the circumference of the earth.

Knowing the Industry
The company’s chairman and CEO, Larry Schwartz, is a very familiar face within the wholesale telecoms community. Schwartz previously served as CEO, board member and one of the owners of the parent company of Global Marine Systems. He in fact helped lead the acquisition of Global Marine from Global Crossing in 2004, as well as the asset acquisition of Red Sky Systems, a developer of subsea network technology. Furthermore, his articles on international transaction strategies have been published by the Council on Foreign Relations, the Centre for International Security & Arms Control at Stanford University and a variety of telecoms journals.

His experience has been essential in securing funding for the project, which has experienced a number of major breakthroughs in recent months.

In January, the International Finance Corporation (IFC) – a member of the World Bank Group – announced that it would be an investor in the project.

Prior to that, in October, Seaborn mandated the French bank Natixis to act as a sole structuring bank, underwriter and lead arranger for a fully underwritten $290 million senior secured project financing debt. “The key thing from that story is that it gives us a comfortable long runway. We are not going away any time soon,” says Schwartz. “It’s a good housekeeping seal of approval. They run a very rigorous process on investment decisions, and we think it is a very appropriate investor for our type of business. And so we are thrilled to have them involved.”

Natixis will also be playing another key role in Seabras-1 by serving as COFACE facility agent and security agent for the project debt. COFACE is the French export credit agency which earlier in October announced a “Promise of Cover” for a credit facility for Seabras-1. Schwartz believes this type of involvement from an export credit agency is unique for the subsea cable sector: “We hope that the export credit agency becomes a well-trodden path after this first one. Once you can show that the model works, it should become smoother through the process. We are very happy with the effort and time that Natixis and COFACE have put in,” says Schwartz.

The French Connection
Seaborn’s French connection goes further, with Alcatel-Lucent also set to construct Seabras-1. The two companies have already commenced with the permit acquisition and marine survey work for the project. As part of the agreement, Alcatel-Lucent will deploy an integrated 100G wet plant of cable and high-bandwidth repeaters, power feed equipment and its 1620 Light Manager (LM) submarine line terminals equipped with advanced coherent technology.

“Alcatel-Lucent has been very supportive of the project and we established a very competitively priced turnkey contract,” says Schwartz. With contracts to also supply and build two other subsea cables projects in Latin America – America Movil’s AMX-1 System and the Pacific Caribbean Cable System (PCCS) – Alcatel-Lucent is becoming a dominant figure in the region. “As a side note, it is good for us that the company is strong in the region as it has experiences with the regulatory processes,” he adds. Other than its unusual financing story, another distinguishing feature of Seabras-1 is the importance that it has placed on being a “PoP-to-PoP solution”. In the US, Seaborn selected Sunesys to provide backhaul for Seabras-1. Sunesys, which operates 8,900 fibre route miles in the US, will deliver a new fibre backhaul network to provide connectivity from the cable’s landing station to Coresite and Equinix facilities in New Jersey. Schwartz admits that finding backhaul solutions in São Paulo has proved “trickier”. “The pricing there is competitive but there are options. For a number of reasons, we are not announcing who the vendor is, although that is not a risk of the project,” he adds. The PoP-to-PoP pricing model, says Schwartz, offers a greater level of transparency to customers: “In the past, there have been problems for price quotes for landing station to landing station, as a customer then discovers it could cost significantly more to get connectivity to a PoP. We wanted to make sure that is not the case, and that there are options at each end.”

Overall, Schwartz says he is delighted with the “unsolicited interest” in Seabras-1 to date. “For us one of the unique things is that as time passes, the business case gets stronger,” says Schwartz. “It is a more crowded space today in terms of proposed new builds in Latin America than when we did our marketing launch, and we know a new-build project is more of a marathon than a sprint. But, for us, what has changed, is that the market has taken us more seriously. We have a better understanding of what the customer needs are, and we’ve already sold a tonne of capacity.”

Source: ITW Daily, Capacity Magazine

Posted on 14th May 2014