PARIS — Satellite fleet operator Intelsat has substantially reduced the size of its planned initial public offering (IPO) of stock, to $750 million from $1.75 billion, saying the equity markets’ appetite for a large IPO is limited and that bond rates and Intelsat’s ongoing debt reduction no longer argue in favor of a larger offering.
Luxembourg- and Washington-based Intelsat, which filed its initial IPO registration with the U.S. Securities and Exchange Commission (SEC) in May but never moved forward on it, said it will use the proceeds to pay down its debt and to make a one-time cash payment to its two principal owners to terminate the annual $25 million consulting fee that the owners demand of Intelsat.
Intelsat is the world’s biggest commercial fleet operator by revenue and operates 54 satellites. It reported $2.6 billion in revenue in 2012, with EBITDA, or earnings before interest, taxes, depreciation and amortization, at 78 percent of revenue. The company’s backlog as of Dec. 31 stood at $10.7 billion.
But Intelsat remains heavily leveraged. Debt totaled $15.9 billion as of Dec. 31, down less than 2 percent from where it stood at the time of the original IPO notification.
In the intervening months, however, Intelsat has suffered one partial and one total satellite failure that have resulted in $488 million in total insurance claims. While around $250 million to $300 million of that will be needed to replace the Intelsat 27 satellite that failed on launch earlier this year, the replacement satellite will not be carrying an expensive UHF-band payload intended for one or more government customers that never came forward.
Intelsat will therefore be receiving more cash from insurance claims than it will need to replace the affected satellites.
Dianne J. VanBeber, Intelsat vice president for investor relations, said the unexpected cash coming in is one reason Intelsat and its owners no longer feel the need to de-lever with an IPO whose size would be much larger than the average IPO of recent months.
Intelsat has said it will be spending only about $50 million in 2013 on the Intelsat 27 replacement satellite, giving the company more than $400 million in extra cash this year.
With the bond markets offering interest rates at historically low levels, Intelsat has plans to refinance several billion dollars of its debt this year. The company has said that for the next two years its minimum debt service would total $3.9 billion in interest and principal payments.
In its March 11 SEC filing, Intelsat said most of the net proceeds from the IPO will be used to further pay down debt. The rest will be for a one-time payment, whose size is undisclosed, to its two private-equity owners, BC Partners Ltd. and Silver Lake Management Co. III LLC. Intelsat is currently obliged to pay these two companies a combined $25 million in management fees each year.
The IPO proceeds will settle this account and terminate the management fee, Intelsat said.
In a March 13 interview, VanBeber said a smaller IPO, in addition to being in line with the current IPO environment, will be less dilutive for Intelsat’s owners.
BC Partners and Silver Lake have permitted Intelsat to remain active in pursuing new markets through satellite investment programs. Intelsat spent nearly $3.7 billion between 2008 and 2012 on new satellites and is now expected to reduce annual spending with fewer new satellites.
Intelsat has three satellites on order, with a fourth, Intelsat 27R, expected to be ordered in the coming months.
The company has not announced which, if any, of its currently occupied orbital positions will be abandoned as Intelsat allows satellite retirements to shrink its fleet size.
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