Intelsat: “Impossible to become profitable”

Owen D Kurtin, a highly regarded satellite business observer from the law firm Kurtin PLLC, has suggested Intelsat is burdened down by huge levels of debt which makes it “all but impossible for the company to become profitable.”

Intelsat is the largest satellite operator in the world and mounted an IPO in April that raised $328 million after fees and expenses, plus a further $143 million in the form of new non-voting preference shares. In all, Intelsat is now valued at about $1.85 billion. That sounds a lot of money, but Intelsat had previously spoken of raising around $1.75 billion in the IPO.

The problem is that Intelsat has a massive $15.8 billion in long-term debt (mainly tied up in borrowings to buy satellites). And that debt needs servicing. Intelsat’s annual revenues are around $2.6 billion, and its operating margins are excellent, but the satellite operator is typically paying out around $1 billion a year in interest.

Kurtin writes in an article in for Satellite Today that: “For a long time, the IPO was assumed to be the eventual magic exit from the debt load, but with a new valuation lower than annual revenues and a debt burden eight times that valuation, it is clear that the public market did not want to be the person left standing when the music stopped; the IPO was not the solution. The only possibility now would seem to be a restructuring, perhaps in the course of an acquisition. If not, Intelsat will go on operating and paying 40 percent of its revenues in interest.”

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