Telesat Pays Big Dividend, Plans To Order Telstar Satellite

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PARIS — Satellite fleet operator Telesat expects to order a replacement for its Telstar 12 satellite this year but otherwise has no plans to expand its fleet or to seek a strategic transaction along the lines of the one its shareholders considered in 2011, Telesat Chief Executive Daniel S. Goldberg said.

The Ottawa, Canada-based company, which in lieu of selling itself distributed a large cash dividend to its two investors and made a hefty cash payment to Telesat management and selected employees, said its immediate focus is on the launch of two spacecraft in 2012.

Both satellites will result in immediate revenue sources for Telesat as both have customers already lined up.

Nimiq 6, scheduled for launch in the coming weeks, has been fully leased to Bell TV for direct-broadcast television services. Anik G1, scheduled for launch in late 2012, has been partly leased to Canada’s Shaw Direct for television broadcasts. This satellite’s X-band payload has been leased to Europe’s Astrium Services, whose Paradigm Secure Communications division will be selling the bandwidth to military and government customers.

In an April 27 conference call with investors and a filing with the U.S. Securities and Exchange Commission (SEC), Telesat said its revenue for the first three months of 2012 was down 3 percent, to 196.3 million Canadian dollars ($196.5 million) compared with the same period a year ago despite new satellite-broadband revenue in Canada and a sharp increase in revenue from customers in Latin America and the Caribbean.

The decrease was mainly due to the effects of a long-scheduled satellite bandwidth rate decrease granted to a large Telesat broadcast customer in North America, which occurred in the second half of 2011.

Countering this revenue loss was an 11.2 percent increase in Telesat revenue from enterprise customers. The company has purchased the Canadian Ka-band transponders on the ViaSat-1 broadband satellite, which entered service in January. Barrett Xplore Inc. has purchased ViaSat-1’s Canadian capacity for the full 15-year life of the satellite. Telesat’s enterprise revenue, which includes the ViaSat-1 business, rose to 89.5 million Canadian dollars in the first three months of 2012.

Broadcast revenue from Latin America and the Caribbean jumped 36 percent, to 16.1 million Canadian dollars, during the period, outperforming Telesat’s other geographic regions. U.S. broadcast revenue rose 4.2 percent, to 64.8 million Canadian dollars, while Canadian revenue dropped by 12.6 percent, to 92.2 million Canadian dollars.

Broadcast revenue from Europe, the Middle East and Africa rose by 1 percent, to 19.1 million Canadian dollars, while broadcast business in Asia and Australia fell 7 percent, to 4.1 million Canadian dollars.

Telesat said that as of March 31, capacity on its North American fleet was 91 percent filled; its international fleet was 80 percent filled.

Telesat’s satellite consultancy reported a 29 percent drop in revenue, to 6.4 million Canadian dollars. For the three months ending March 31, Telesat’s EBITDA, or earnings before interest, taxes, depreciation and amortization, was unchanged at about 78 percent of revenue. Backlog stood at 5.5 billion Canadian dollars.

Telesat is owned by Canadian pension fund PSP Investments and Loral Space and Communications of New York. The two owners had sought to auction Telesat but were dissatisfied with the bids, deciding instead to award themselves a special dividend of 656 million Canadian dollars.

To finance this payment, and as part of a broader debt refinancing package, Telesat in late March entered into a new credit agreement valued at about $2.55 billion.

The company’s board also agreed to award Telesat’s management, and selected employees, a special payment of 48.6 million Canadian dollars in connection with the special dividend paid the two principal shareholders.

Coinciding with these transactions, Telesat redeemed 146 million Canadian dollars in principal and interest on preferred stock owned by an affiliate of PSP Investments. A PSP affiliate subsequently lent Telesat 146 million Canadian dollars in the form of a promissory note that will pay 9.75 percent annual interest for the first two years, at which time half of it will be repaid. The remaining half will pay an annual interest rate of at least 11 percent for two years before being repaid.

Goldberg said Telesat’s two owners, which have held their equity stakes for about four and a half years, deserved a dividend at this point in their tenure. Asked during the conference call whether a new strategic transaction — meaning the company’s sale or merger — was likely, he said the two owners have stated their belief in Telesat’s long-term growth potential and proved that faith by abandoning the auction.

 

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