Financing Satellites – Legal and Commercial Challenges – Part 1: The Case for Asset Finance

Briefing

05 November 2025

14 MIN READ

2 AUTHORS

The space industry has experienced a remarkable growth in recent years, with projections indicating an even greater and rapid expansion ahead. According to Morgan Stanley’s Space team, the roughly $350 billion global space industry could surge to over $1 trillion by 2040¹. The consulting firm Novaspace indicated that, between 2020 to 2024, 11,344 satellites were launched into space – against 1,842 satellites between 2015 and 2019².

The most significant short-term and medium-term opportunities come from satellite broadband Internet access³.
Once deemed excessively costly and unproductive, the satellite industry is attracting an increased attention from banks and institutional lenders⁴, who are now investing billions in new space ventures: there is a global and general awareness that space is no longer just a scientific pursuit but a rapidly growing industry with vast economic potential⁵. As satellite technology becomes more modular, cost-effective, and commercially viable, banks are beginning to see the potential of space assets as part of a diversified investment and lending portfolio, capable of generating stable, long-term returns⁶.

In light of the complexity of the market, financings are done through a variety of instruments, and, frequently, with the support of export credit and development financial institutions. As illustrations to the growing involvement of export credit agencies:

in 2023, the Vice Chair of the Export-Import Bank of the United States (EXIM), Judith Pryor, announced that EXIM was developing a USD 5 billion pipeline of space financing⁷;
in 2024, Eutelsat announced a 30% reduction in capital expenditure for its OneWeb Gen 2 satellite network, mentioning phased investment and the use of new technologies; two-thirds of the project were announced to be funded through low-cost export credit financing from export credit agencies in India, the UK, and France⁸;
in 2025, the Luxembourg Space Agency and the European Investment Bank have launched a strategic partnership to promote the adoption of satellite-based technologies within the financial sector. This initiative, known as “Space for Finance”, seeks to leverage Europe’s capabilities in Earth observation and satellite navigation to support more robust sustainability reporting, risk analysis, and impact assessment – particularly in sectors like investment banking and insurance⁹.

This article examines (I) the case for shifting from traditional project finance structures (largely reliant on long-term revenue contracts) to more flexible asset-based financing models, which may be better suited for the evolving dynamics of the space industry, and (II) the key legal and commercial challenges associated with satellite financing, with a particular focus on the difficulties that lenders can face in taking security over space assets.

The case for asset-based financing

Satellite financing has traditionally been implemented through project finance rather than asset finance.

Asset-based financing and project financing are both methods of securing capital, but they differ fundamentally in structure and risk allocation:

asset-based financing is secured directly by specific, identifiable assets (such as vessel, aircraft or locomotives). Lenders rely on the value of the asset itself as collateral, and in the event of default, they have rights to repossess or enforce against the asset. This approach is particularly useful for financing individual, high-value items that can be clearly defined and registered;
in contrast, project financing is typically used for large-scale infrastructure or development projects, where repayment depends on the future cash flows generated by the project rather than the value of underlying assets. It often involves complex contractual arrangements, multiple stakeholders, and limited or no recourse to the project sponsors.

While project financing spreads risk among participants and allows for the development of capital-intensive ventures, asset-based financing offers a more streamlined mechanism focused on asset-specific creditworthiness and enforceability.

For the many new start-ups entering the industry, traditional project finance presents clear inconveniences:

firstly, start-ups typically lack the long-term, revenue-generating customer contracts that lenders rely on to assess a project’s financial viability and ensure predictable cash flows. Without these contractual assurances, it becomes difficult to structure project finance deals that meet lender requirements for risk mitigation; and
secondly, the legal, financial, and administrative complexity associated with traditional project finance (notably, the need for detailed risk allocation arrangements, multiple stakeholder agreements, and regulatory compliance, etc.) can be prohibitively expensive and burdensome for small, early-stage companies. These businesses often operate with limited capital, small teams, and tight development timelines, making it difficult to navigate the intricate structures and high transaction costs that traditional project finance entails.

Asset financing offers a compelling alternative. By focusing on the asset itself (instead of uncertain revenue streams), it provides a simpler and less expensive cost structure, well-suited for startups and high-risk ventures. This model is already well-established in other transport sectors, such as aviation and shipping, where physical assets like aircraft and vessels serve as the main collateral to the financing, but it remains under-developed in the satellite sector: banks are generally hesitant to rely on satellites as primary security, and such hesitation is rooted in the inherent complexities and risks associated with space-based assets:

once deployed into orbit, a satellite is typically beyond the reach of maintenance or modification – it cannot be physically repaired, upgraded, or retrieved under normal circumstances. This operational finality renders the satellite a single-use, non-recoverable asset, which significantly undermines its appeal as security in a financing arrangement; and
in the event of borrower’s default or insolvency, the satellite cannot be repossessed in any practical sense, nor can it be easily remarketed or liquidated to recover outstanding debt. Its location in outer space, combined with the absence of a robust secondary market, makes it a highly illiquid form of collateral.

Consequently, lenders often perceive a security interest in a satellite as theoretical at best: an asset that is inaccessible, uncontrollable, and ultimately unreliable as a means of recourse.

In his article “NewSpace, Old Problems: Asset-Based Satellite Financing in the Asia-Pacific” (Singapore Journal of Legal Studies – 2021)¹¹ Jack Wright Nelson presents a forward-looking view on the growing potential of asset-based financing in the satellite sector. Challenging traditional doubts, Jack Wright Nelson argues that recent technological development (such as modular satellite design, on-orbit servicing, and even satellite retrieval) are changing how satellites are valued.

These innovations are starting to give satellites real residual value, making them more attractive as collateral.

Privately held space exploration firms have also been developing space technologies, with ambitions such as manned landings on the moon and airplane-borne rocket launchers that could launch small satellites to Low Earth Orbit at a far lower cost, and with far greater responsiveness, than ground-based systems. As these technologies mature, a secondary market for satellites will emerge, improving their liquidity and appeal to lenders.

As a result, asset-based financing has strong potential to expand within the satellite industry, provided that transactions are structured within a clear and predictable legal framework. It is essential that the creation, perfection, and enforcement of security interests over satellites are governed by well-defined rules. Such strong legal framework would give lenders more confidence and asset-based financing could become a practical and scalable alternative to traditional project finance – especially for NewSpace companies looking for more flexible funding.

In the paragraph below, we will analyse the legal and commercial challenges associated with the creation, perfection and enforceability of security interests over satellites.

Key legal and commercial challenges associated with satellite financing

Historically, the failure of satellite ventures launched by IBM Corp., Federal Express and Rupert Murdoch, discouraged banks from investing in the satellite sector¹².

Satellite financing (whether structured as project finance or asset-based lending) typically involves taking a security interest over the satellite itself, usually in the form of a mortgage or charge.

A major hurdle for space companies seeking asset-based financing is the difficulty for creditors to effectively perfect and enforce their security interests.

Financing transactions with a foreign nexus introduce significant legal uncertainty. When the financier, debtor, or collateral is connected to a foreign jurisdiction, questions arise regarding which law governs the creation, perfection, priority, and enforcement of a security interest. Even determining whether an interest qualifies as a “security interest” under foreign law can be complex and unclear¹³.

To be effective, such a security must (1) attach (i.e. be enforceable against the borrower), (2) be perfected (i.e. enforceable against third parties), and (3) enjoy priority over competing claims. Each of these matters raises legal or commercial challenges that need to be addressed.

Creation of the security:

Two issues often arise in satellite financing, when creating a security interest:

depending on the jurisdiction and transaction structure, a lender taking a security interest over a satellite may be deemed to acquire a level of control or ownership over the asset, potentially triggering licensing or regulatory approval requirements. As a result, lenders typically require contractual undertakings from the borrower to maintain regulatory compliance throughout the term of the financing;
because satellites are exposed to significant operational risks in orbit, insurance is a critical component of satellite finance. From a lender’s perspective, it is essential to ensure that any insurance payouts (whether for damage, destruction, or loss) are directed to the secured creditor. In practice, this is often addressed by naming the lender as a loss payee in the insurance policy, or in some cases, as an additional insured. While this offers greater legal protection, insurers may view lenders as more likely to litigate, potentially leading to higher premiums or even refusal to extend coverage on those terms. Automatic attachment of security interests to insurance proceeds, while keeping the borrower as the named insured, can provide a more efficient compromise.

Perfection of the security:

To be enforceable against third parties, a security interest must be perfected. Perfection typically involves public registration or other notice mechanisms.

In the context of satellites, perfection raises complex questions due to the locational characteristic of space assets. Unlike terrestrial or even maritime or aviation assets, satellites in orbit lack a defined lex situs (i.e. the legal location of the asset), which creates uncertainty around which jurisdiction’s perfection rules apply. This problem is compounded by variation in domestic secured transactions laws, making it difficult to determine how and where to perfect a security interest in a satellite.

Enforcement of the security:

The value of a security interest is tested at the point of borrower default or insolvency.

A lender holding an attached and perfected interest will seek to enforce that interest through contractual remedies such as possession and sale, appointment of a receiver, or foreclosure. However, in the space sector, enforcement is complicated by regulatory constraints. Even where enforcement rights are contractually agreed, actual execution often requires coordination with (and approval from) national regulatory authorities, which may delay or block the process altogether.

Enforcing a security interest over a satellite presents unique operational hurdles.

Because the satellite is located in outer space, traditional concepts of repossession and asset recovery are difficult to apply. If the satellite’s telemetry, tracking, and control (TT&C) system is based within the enforcing jurisdiction, a court may issue an order allowing the lender to assume control. But in general, there is no recognised lex situs in space, nor is there an accepted fallback such as the law of the state of registration (as is used for ships and aircraft).

These unresolved conflicts of law issues limit legal certainty. Lawmakers should respond with a more adaptive, forward-looking legal framework.

Fortunately, a basis already exists: the Space Assets Protocol under the Cape Town Convention, which aims to establish a clearer and harmonised framework for taking, perfecting, and enforcing security interests in satellite assets.

Conclusion

We have briefly highlighted the financing challenges faced by the space industry, particularly in securing traditional and asset-based funding. While some obstacles are common across the sector, others are specific to emerging NewSpace ventures. These challenges span legal, regulatory, and practical domains. Though complex, these issues are not insurmountable, and a range of solutions exists.

States are starting to enact their own regimes, with the objective of reducing uncertainty and creating an environment in which both operators and financiers can engage with greater confidence. However, the proliferation of national laws risks creating a fragmented legal landscape, where operators and lenders face differing rules depending on jurisdiction.

As we will see in the next publication, the Space Assets Protocol aims to bring clarity to the inherently uncertain realm of outer space As the space economy evolves, instruments like the Space Assets Protocol may prove essential in supporting both conventional project finance and the growing demand for asset-based financing in satellite systems and beyond.

Footnotes