NEW YORK, Sept 2 (IFR) - Intelsat launched its third
liability management exercise of the year this week, trying to
woo investors with another bond exchange in an ongoing effort to
tackle its US$15bn debt pile.
While the exchange is expected to be a success - Intelsat
said holders of more than half the bonds concerned have already
accepted - the trade is unlikely to provide much help.
S&P meanwhile said it considered the offer a selective
default, and dropped its rating on the Luxembourg-based
satellite company two notches to CC.
"They have not done a lot to meaningfully improve the
capital structure at this stage," CreditSights analyst Lindsay
Pacia told IFR.
"The reduction in debt they have achieved to this point will
likely be offset by a decline in Ebitda."
LOST IN SPACE
Intelsat has been groaning with debt since its US$16.6bn
leveraged buyout in 2008 by private equity firms BC Partners and
The latest offer will be the company's third liability
management exercise since hiring Guggenheim in February to
advise on managing its balance sheet.
But while it is offering a generous premium, the new offer
only covers US$142m of its outstanding 6.625% senior 2022s - a
drop in the ocean when faced with US$15bn in debt.
And while Intelsat does not face significant debt maturities
until 2018, its highly leveraged balance sheet is at odds with
declining revenues and increased competition in the industry.
"Intelsat is a zombie company," said John McClain, a
portfolio manager at Diamond Hill Capital Management.
"It is a large issuer with reasonable liquidity in the short
term. But the capital structure in its current form is
Holders of the 2022s who accept the exchange will get 12
cents to the dollar in cash and 70.5 cents of new 8% secured
Those who also agree to eliminate virtually all the
covenants - and waive any claims on a default - will pocket an
additional 6.5 cents on the dollar.
Analysts said that amounted to roughly a 16 cent premium to
the outstanding 2022s, which jumped as high as 87.5 last week
after the exchange offer was announced.
They had been trading around 72-74 before the announcement.
Whatever happens with the exchange, analysts and investors
alike seem to agree that the company's struggles will be very
difficult to overcome - and that restructuring is on the cards.
Revenue has declined steadily since the company's initial
public offering in 2013, while interest payments have been
consuming more than one-third of the company's top line.
"It is not a mathematical possibility for them to grow back
into this cap structure," one portfolio manager told IFR. "It is
lawyer work, not investor work."
Intelsat downgraded its earnings guidance for the year in
February, and then saw some of its unsecured bonds drop more
than 20 points in two days.
After that, it issued US$1.25bn of secured 2024s in March
and US$490m of secured 2022s in June - not the 2022s involved in
the current exchange offer - to help buy back debt.
Some in the market believe asset sales or even more debt
exchanges at the holdco level could provide breathing space
before any restructuring.
Analysts at Jefferies believe the company will return to
growth next year, and the company itself says that four
satellites launched this year will boost the bottom line.
"With the entry into service of these four satellites, we
will be in a position to return to revenue growth," said Dianne
VanBeber, company vice president for investor relations.
But other voices of optimism are few and far between.
"It is restructuring assured," said the portfolio manager.
"The question is how the restructuring will be managed."
(Reporting by Davide Scigliuzzo; Editing by Natalie Harrison,
Shankar Ramakrishnan and Marc Carnegie)