ITSO Again Seeks Measures To Hedge Against Intelsat Bankruptcy

The intergovernmental organization that monitors Intelsat’s compliance with its public-service obligations is making a second attempt to persuade U.S. regulators to impose special measures to protect certain Intelsat satellites and orbital slots.

The International Telecommunications Satellite Organization (ITSO) wants the U.S. Federal Communications Commission (FCC) to force Intelsat to take steps to protect these assets against a possible Intelsat bankruptcy.

Citing Intelsat’s high debt levels following its purchase of PanAmSat, ITSO is asking that Intelsat place a lien, a letter of credit or some other binding guarantee on these satellites and orbital slots. In the event of an Intelsat bankruptcy, these assets would continue to be available for public-service use, even if owned by another company.

ITSO made the same arguments earlier this year to the FCC during the agency’s consideration of Intelsat’s purchase of PanAmSat. The FCC rejected the ITSO reasoning, saying that even if the arguments had merit, the time to review the issue was not during regulatory review of a proposed merger. The agency invited ITSO to make its case once the merger was final.

Intelsat’s purchase of PanAmSat became effective July 3, and ITSO waited just a week before taking the FCC up on its offer.

The FCC has set an Aug. 17 deadline for comments on the matter, and a Sept. 5 deadline for all replies.

Intelsat, based in Washington and Bermuda, was privatized in 2001. Some of the newly created company’s assets were withheld to fund ITSO for 12 years. ITSO, representing 148 member nations, is responsible for assuring that the privatized Intelsat continues to adhere to the core public-service obligations that were the basis of its creation in the 1960s as an intergovernmental cooperative.

These obligations include providing universal and non-discriminatory access to its satellites. They also include providing so-called Lifeline Connectivity — meaning price-controlled access to satellite capacity — to qualifying nations that have little or no alternative to Intelsat in maintaining links to the global telecommunications grid.

Intelsat is owned by private-equity investment companies that have increased the satellite operator’s debt to provide themselves with special dividends and, more recently, to finance the $6.4 billion purchase of PanAmSat.

ITSO, in its July 10 petition to the FCC, says this debt level makes Intelsat unstable and could trigger a bankruptcy filing or a creditor-forced sale of assets. If this were to happen, ITSO says, there is nothing to prevent Intelsat from selling off whatever satellites it wishes. In that event, the new owner would not be bound by the public-service provisions.

That is why ITSO proposes that a lien or letter of credit be attached to at least five Intelsat satellites that, together, would continue to offer global coverage.

“This protection would ensure the replacement of a sufficient number of satellites for the ongoing achievement of these [public-service] goals,” ITSO says in its FCC filing.

ITSO concedes that Intelsat is not facing an immediate financial emergency, but insists that “it is better to prepare for potentially catastrophic situations prior to their arrival, as opposed to improvising solutions once they are at hand.”

ITSO says Intelsat would have no more than 90 days before filing for bankruptcy in which to preserve its public-service assets. The satellite license modifications it is asking of the FCC “neither generate a requirement for current expenditures nor cause disruption” to Intelsat’s operations, ITSO says.

Intelsat disagrees with ITSO on both these last points. Dianne VanBeber, Intelsat vice president for investor relations, said in a July 21 statement that a lien or letter of credit attached to its satellites “would indeed be very costly, even if it could be worked out conceptually. No one provides a letter of credit or a guarantee for free, especially given our more highly levered capital structure.”

VanBeber also said that a bankruptcy-driven reorganization of Intelsat would necessarily involve the FCC, which would have to approve the transfer of satellite licenses to the new owner. “It is at that point that ITSO would have the opportunity to bind the operator to market restrictions,” VanBeber said.

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