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Intelsat suffers multiple downgrades

Satellite operator Intelsat had a marginally better day on the NYSE market on February 29th and its share price rose 3 cents (to $1.72), but the overwhelming sentiment remains downbeat.

Perhaps the most dramatic move is from credit ratings agency Moody’s, which downgraded Intelsat with comments saying that the company’s debt structure has become “unsustainable”.

Moody’s downgraded all of the company’s key metrics including its ‘Probability of Default’ (PDR) rating and its senior secured bank credit facility (from B1 to Ba3) and similar downgrades for its other borrowings, debts and debentures. However, Moody’s is happy with the company’s liquidity.

Moody’s comments added: “[Our] actions were prompted by a combination of business fundamentals and capital structure considerations that, from Moody’s perspective, signal the company’s debt structure has become unsustainable. In particular, while Intelsat’s major fixed satellite services peer companies report of challenging conditions in the network services sector, a segment that Moody’s views being highly commoditized, with Intelsat’s revenue mix disproportionately exposed to that sector, future growth prospects are uncertain. Additionally, while management views its new high throughput satellites as addressing commoditization, Moody’s wonders whether they add capacity to an already over-supplied market, and it is unclear to Moody’s whether ongoing negative re-pricing momentum can be curtailed. With Moody’s expecting negative free cash flow in 2016 and leverage of Debt/EBITDA increasing to ~9x, it is uncertain whether the company’s cash flow generation can rebound to levels required to support the timely replacement of its revenue-generating assets.”

Intelsat also suffered downgrades on February 29th from a number of investment banks. Wells Fargo downgraded the stock to ‘Market Perform’ from ‘Outperform’, while RBC Capital opened their research on the satellite company with an ‘Underperform’ comment.  Goldman Sachs reduced its price target on Intelsat from $3 to $1.50, and maintains a ‘Sell’ advice to clients.

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