Intelsat hires Guggenheim to plot debt restructuring
PARIS—Satellite fleet operator Intelsat on Feb. 22 said it had hired Guggenheim Securities to assess unspecified “financing and balance-sheet initiatives” that company officials stressed was not a prelude a merger or acquisition — nor to a Chapter 11 bankruptcy filing.
Intelsat said Guggenheim would be assisting in possible transactions “including, among other things, evaluating the level of secured debt and balance sheet management opportunities.”
Intelsat had a total of $14.6 billion in debt as of Dec. 31, little changed from a year ago. The company has a revolving credit line it has not yet tapped, to which access is not constrained by any special covenants that throw it into doubt.
“We have plenty of liquidity available to us,” Intelsat Chief Financial Officer Jacques Kerrest said in a conference call with investors. “We are not using the revolver. We are absolutely fine for now.”
He conceded that Intelsat’s cash requirements for debt repayment will increase starting in mid-2016 – a time when the company is in the middle of a big capital spending program for new satellites and is already investing in expertise as it positions itself to win new customers.
Luxembourg- and McLean, Virginia-based Intelsat said it paid $890.3 million in interest in 2015, down nearly 6 percent from 2014 after several refinancing transactions that are likely to become more difficult in a higher-interest-rate environment.
Intelsat reported revenue of $2.35 billion in 2015, down 4.9 percent from 2014, and told investors to expect another drop of around 8 percent in 2016. Backlog at Dec. 31 stood at $9.4 billion, flat from a year earlier. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was 79 percent of revenue, also stable from a year ago.
The company’s fleet of about 50 satellites was 76 percent full as of Dec. 31, flat from last year.
Intelsat Chief Executive Stephen Spengler said during the conference call that the company – and the entire satellite telecommunications industry – was facing pricing pressure on two fronts.
The first is the arrival of new satellites in certain regions where supply is already outstripping demand. The second is the arrival of new high-throughput satellites, like Intelsat’s Epic line, that offer far lower per-megahertz prices than traditional satellites.
Intelsat’s first Epic, launched in January, is scheduled to enter operations in April. Six other Epic satellites are to follow.
Spengler said the sharp drop in the value of the Brazilian real will affect Intelsat because the company’s Brazilian billing is done in local currency, unlike all other media and network systems customers, who are billed in U.S. dollars.
In Russia, where the contract pricing is in dollars, Intelsat has been forced to renegotiate contracts with its most-valued customers to keep them out of the bad-debt column.
Spengler said that despite Intelsat’s possible loss of a five-year contract to provide the U.S. Navy with satellite connectivity worldwide – Intelsat has protested the way the bid has been formulated – demand from the U.S. government appears to have hit bottom and may be on the upswing.
Intelsat said its Intelsat General Corp. subsidiary, which is devoted to government business, improved its contract renewal rate performance by 15 percent in 2015 versus 2014.
Government revenue was $100.2 million in the three months ending Dec. 31, up 1 percent from the same period a year ago, but was down 6 percent, to $385 million, for the whole of 2015.
Intelsat said it would be taking a non-cash impairment charge of up to $6.8 billion — the amount has not yet been determined — to reflect a decline in intangible assets since 2008, when a private-equity investment group led by BC Partners acquired a majority stake in Intelsat.
During the call it became clear that some investors are nervous that the entire business model of fixed service satellite fleet operators – long-term revenue visibility, high gross-profit margins and a blue-chip customer base – might be coming undone, leading to much lower per-megahertz pricing.
Spengler said that in some markets, notably the North American broadcast business, pricing remains stable, and that Epic should enable Intelsat to counter the broader downward pricing pressure by offering added-value services.
So far, Spengler said, Intelsat has not seen the cannibalization of business – customers moving of conventional satellites to purchase lower-cost Epic capacity – that had been a concern as high-throughput capacity enters the market.