Ottawa-based satellite operator Telesat, the world’s fourth-largest, is moving some assets around in preparation for its planned multi-billion dollar constellation of Low Earth Orbiting (LEO) craft.

The news emerged hot on the heels of Telesat’s financial numbers for 2018, which showed a 3 per cent fall in overall revenue to C$903 million (about €584m). However, its EBITDA margin’s improved y-o-y from 82 per cent in 2017 to the slightly better 82.2 per cent last year.

“As a result of our continued operating discipline, we maintained our favourable EBITDA margin, achieved strong free cash flow generation, and meaningfully increased our cash balances year over year. We also launched and brought into service two new geostationary satellites — Telstar 18 Vantage and Telstar 19 Vantage — and launched our first LEO satellite, an important step in moving forward with our planned revolutionary global LEO broadband satellite constellation. Looking ahead we remain heavily focused on increasing the utilization of our in-orbit satellites and executing on our key growth initiatives, particularly our LEO programme,” said Telesat in a statement.

It is that planned LEO investment – estimated to cost about $3 billion – that Telesat has prepared for by hiving off a new division, and separate from the core company. Telesat operates under a number of borrowing covenants – not in themselves unusual – and the new business will be free of those borrowing restrictions.

A March 1st filing with the SEC says that Telesat has moved C$187 million into this new entity. “We don’t know exactly how we’re going to structure the financing of the LEO project,” Telesat’s CFO Michel Cayouette said in a March 1 conference call with investors. “One option is to use an unrestricted subsidiary. In the year, there was a point where we were lower than 4.5x [ratio of debt to EBITDA], so we moved money that we thought we would need, around US$150 million into that unrestricted subsidiary.”

Telesat is weighing up two potential bidders to build its fleet of LEO craft: Airbus, and Thales Alenia+Maxar/SSL.  The two should be able to present their recommendations by the end of this year.

Telesat already has two test LEO satellites in orbit, both orbiting at 1000 kms.

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