Friday, 17 September 2021

Intelsat plans to restructure its way out of bankruptcy

by Harry Baldock, Total Telecom
Thursday 26 August 21

The satellite operator’s new plan would see it become a private company, but leave it well placed to cash in on spectrum clearing incentives from the Federal Communications Commission (FCC)

In May 2020, veteran satellite operator Intelsat filed for bankruptcy. While the company’s shares had been struggling on the stock market for many years, the real motivation for the decision appeared to be directly tied to the FCC’s decision to shift satellite services from the 4.8 GHz (i.e., C-band) spectrum, in order that the spectrum might be used by terrestrial operators for 5G. In order to hasten the satellite operators’ transition, the FCC has offered major financial incentives…

In May 2020, veteran satellite operator Intelsat filed for bankruptcy. While the company’s shares had been struggling on the stock market for many years, the real motivation for the decision appeared to be directly tied to the FCC’s decision to shift satellite services from the 4.8 GHz (i.e., C-band) spectrum, in order that the spectrum might be used by terrestrial operators for 5G.

In order to hasten the satellite operators’ transition, the FCC has offered major financial incentives; Intelsat, the world’s second largest satellite operator by revenue, could stand to gain $4.86 billion if it vacates the spectrum by the end of 2023, two years faster than the FCC’s final deadline.

But achieving this rapid transition is no mean feat, especially with the company lumbered with $15 billion in debt. Intelsat’s chief financial officer, David Tolley, suggested that the operator would need to spend around $1.6 billion to manufacture and launch new satellites, as well as upgrading their terrestrial technology, to facilitate the transition in time.

As a result, a month after missing a bond payment in April 2020, Intelsat declared bankruptcy, saying it could not afford to transition out of the C-band while under the weight of all its debt. 

Soon after its Chapter 11 filing, Intelsat said it had obtained a $1 billion debtor-in-possession loan, which would allow it to continue its operations and begin the FCC-required transition. 

“We intend to move forward with the accelerated clearing of C-band spectrum in the United States and to achieve a comprehensive solution that would result in a stronger balance sheet,” said Stephen Spengler, Intelsat’s chief executive at the time. “This will position us to invest and pursue our strategic growth objectives, build on our strengths, and serve the mission-critical needs of our customers with additional resources and wind in our sails.”

By February 2021, the company announced that it would be restructuring, aiming to cut its $15 billion debt by over half, to $7 billion. Under this plan, new stock would be issued, 95% of which being given to unsecured creditors of its subsidiary, Intelsat Jackson. At the time, Intelsat said creditors representing around $3.8 billion of its debt had registered support for the move.

Now, however, half a year later, Intelsat has reportedly amended its restructuring plan, this time gaining the support of creditors representing around 75% of its debt. This new plan still aims to reduce the company’s debt from $15 billion to $7 billion, but this time the company will leave bankruptcy as a private company, not a public one. 

“The Amended Plan provides that Intelsat will emerge as a private company, with the support of new equity owners, to best advance its strategic objectives and accelerate its growth trajectory, with a path to becoming publicly traded again at some point in the next five years,” said Intelsat in the announcement. 

Intel did, however, acknowledge its intent to become a public company once again within five years.

The plan has been filed with the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division. Approval could be given at the start of next month; if so, Intelsat could leave Chapter 11 protection by the end of the year. 

 

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