Intelsat Executives Downplay Stock’s Disappointing Debut
PARIS —’s long-awaited debut on the U.S. stock market April 17-18 found the company and its all-star list of underwriters forced to scale back the expected common-stock price by 22 percent and the share volume by 11 percent in a market destabilized by concerns about terrorism and a slowing Chinese economy.
Intelsat Chief Executive David McGlade shrugged off the initial disappointment, saying the offering nonetheless succeeded in placing about 25 percent of Intelsat’s equity value, which he said is on par with recent initial public offerings (IPOs). Intelsat priced its shares April 17, with trading starting the following day.
In an April 18 interview from New York, where Intelsat’s management team was on the dais of the New York Stock Exchange to ring the closing bell, McGlade and Intelsat Chief Financial Officer Michael McDonnell said the bumpy early ride will soon be forgotten as investors take a closer look at the company’s prospects.
McGlade said he was not disappointed in the underwriting team — led by Goldman Sachs, JP Morgan, Morgan Stanley and Bank of America Merrill Lynch — in the way the IPO was conducted. “In light of everything the market’s been through this week, we’re extremely pleased” with the IPO, he said.
Intelsat had hoped to sell 21.7 million common shares at an average price of $23 per share, but it was forced to reduce the IPO price to $18 per common share and sold 19.32 million shares.
Intelsat also sold 3 million preferred shares at $50 apiece, netting another $142.9 million. The preferred shares return an annual interest of 5.75 percent through May 2016, at which time they will convert to common shares.
When the preferred shares are added into the mix, Intelsat expects to net about $472 million after underwriter expenses and other IPO-related costs. The money will be used to pay down Intelsat’s sizeable debt, which had undoubtedly caused some prospective investors to stay on the sidelines.
McGlade reiterated that Intelsat’s current owners, private equity investors BC Partners and Silver Lake, will not be pocketing any of the IPO proceeds, nor will Intelsat management.
“There is no payday for anybody until we start generating growth in equity,” McGlade said, adding that management has agreed to a 180-day lockup period during which it cannot sell its shares.
Luxembourg- and Washington-based Intelsat, which is the world’s largest commercial fleet operator, joins competitorsof Luxembourg, of Paris, AsiaSat of Hong Kong and of London as so-called pure plays in the satellite sector with publicly traded stock. Inmarsat operates a mobile satellite services business, whereas Intelsat, SES, Eutelsat and AsiaSat are in the fixed satellite services sector. But the lines separating these categories are blurring.
McGlade said the company never considered delaying the IPO in the past couple of weeks even as it became clear that the equity markets were skittish. He said the company’s presentations to prospective institutional investors in the weeks preceding the IPO were positive, and that he was impressed by their knowledge of the fixed satellite services business and Intelsat’s place in it.
Unlike SES, Eutelsat and Inmarsat, Intelsat will not be offering shareholders a dividend anytime soon. Reducing the company’s nearly $16 billion in debt is the first priority. While an IPO netting $472 million will not materially reduce that, Intelsat says that when combined with other measures, the company will be deleveraging quickly.
McDonnell said Intelsat has been paying about $1.25 billion per year to service its debt. But the proceeds from the IPO, plus about $500 million in insurance claims from the loss of one satellite and the partial failure of another, combined with recent debt refinancing, are already cutting that annual interest payment by nearly $300 million, McDonnell said.
In addition, Intelsat has nearly completed a multibillion-dollar capital investment program in new satellites. Spending in 2012 on new satellites was $866 million and will fall to less than $700 million in 2013, with further declines expected in 2014 and 2015, allowing Intelsat to direct its free cash flow to further deleveraging, McDonnell said.
Intelsat reported $2.6 billion in revenue in 2012, flat from 2011, with a backlog of $10.7 billion. The company has recently been focusing on the aeronautical and maritime mobile communications markets, both of which are growing, with dedicated beams on satellites designed to appeal to mobile users.