The biggest talking point on Wall Street in recent years has been the rise of private credit—corporations receiving loans from non-bank financial institutions, instead of taking on bank debt or issuing bonds themselves. Now, that trend is coming to orbit.
Rocket fuel: The vast majority of funding for new space companies is venture capital. That may be starting to change, however, as entrants from the last decade mature and underwriters become more confident in the value of space technology.
Payload spoke to Trinity Capital Senior Managing Director Ryan Little about this trend. His portfolio at the publicly traded asset manager ($TRIN) includes $500M in asset-backed loans made to the space industry in the last three years, with deals including $120M to Rocket Lab, $100M to AST SpaceMobile, and, most recently, $60M to EarthDaily.
Follow the money: Trinity specializes in working alongside VCs and banks to support high-growth companies in capital-intensive sectors. Space founders and investors will be familiar with the challenge of raising money—then seeing it go right out the door for manufacturing facilities, CNC machines, test chambers, satellite components, and other pricey hardware.
“Investors don’t usually want to see their dollars sunk into capex costs, right?” Little told Payload. “They’d rather see their dollars go into some sort of growth, R&D, [or] advancing the technology, and so [bringing in private credit] is a win-win.”
Value prop: If a fast-growing startup can take a secured loan and delay a new equity round by six to 18 months, Little argues, the cost of interest payments pales in comparison to the value created by the company during the intervening time.
“The short answer is, our dollars are a lot cheaper than equity dollars,” Little said. “At the end of the day, we’re going to make about a 1.3x multiple, whereas the equity folks are going to make something a lot larger than that.”
Space case: While underwriting terrestrial-manufacturing equipment is fairly cut-and-dried, Trinity will also make loans against satellites in orbit. That business model can require more specialized expertise during underwriting and more creativity, Little says, particularly during the period ahead of launch.
Until the spacecraft are generating revenue on orbit, Trinity might lend against the value of standardized satellite busses, other equipment, or even the value of the company.
“By the time [those spacecraft] are up and operating, some of our loan has been paid down,” he said, “and that company just took a giant step forward, typically, in terms of their enterprise value—and their likelihood to succeed through the term of our loan.”
