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Intelsat bankruptcy exit at risk

August 26, 2021

There are many pages of potential problems to be overcome by Intelsat as it proceeds towards its proposed Exit Plan from bankruptcy under its Amended Plan. But two Luxembourg entities figure largely in the 607-page filing to its US bankruptcy court on August 24th.

The first is Intelsat arch-rival SES, very much based in Luxembourg, and which has claims and actions on Intelsat for potentially $1.8 billion and which concern the division of incentive payments from the FCC over the pair’s C-Band Alliance.

The Intelsat document says: “SES asserts that the Debtors owe money (or will owe money) to SES as a result of a consortium agreement between Debtor US LLC, SES, and other satellite operators (the “Consortium Agreement”). SES alleges it is entitled to 50 percent of the combined accelerated relocation payments that may eventually be payable to the Debtors and SES pursuant to the FCC Order, which provides for Accelerated Relocation Payments subject to the satisfaction of certain deadlines and other conditions set forth therein. SES’ proof of claim alleges that the Debtors breached the Consortium Agreement, breached fiduciary duties to SES, and also alleges unjust enrichment. SES seeks compensatory and punitive damages. The Debtors dispute the allegations in the proofs of claim and believe that no claim by SES should be allowed.”

Intelsat adds: “If SES’s claim were allowed and placed into its own class, the Debtors may be unable to obtain confirmation of the Amended Plan without SES voting to accept it or, if confirmed, recoveries under the Amended Plan could be materially impacted. The Debtors may also seek to confirm an alternative chapter 11 plan.”

But the other major concern outlined in the Exit Plan talks of the threat from Luxembourg-based courts. Page after page of the Amended Plan are devoted to explaining the differences between US law and Luxembourg law as far as taxation matters are concerned.

This is because some of the Intelsat businesses are officially domiciled in Luxembourg. Intelsat says: “Because under Luxembourg law, Luxembourg courts have exclusive jurisdiction in insolvency matters with respect to companies that have their principal offices in Luxembourg, there is a significant risk that Luxembourg courts will not recognize a US court order. Challenges in Luxembourg could include attempts to unwind a confirmed plan in order to effectuate alternative restructuring transactions under Luxembourg bankruptcy laws.”

There’s also a potential headache from Luxembourg and its tax formalities which vary from those in the US. The rules – and differences – are extremely complex (unless you are a skilled international tax expert) and in the main concern Net Operating Losses (NOLs) and how the Luxembourg tax authorities might interpret various losses on Intelsat’s associated companies.

Intelsat is seeking an Expedited Hearing on the plan on September 1st.

Meanwhile, Intelsat’s eight most senior executives, already in receipt of very attractive salaries despite the company’s bankrupt status, will receive a large slice of share in a reconstructed company if its Chapter 11 bankruptcy court approves Intelsat’s Exit Plan.

One clause in the Plan of Reorganisation calls for a Management Incentive Plan (MIP) to be created. This MIP suggests an equity pool of 3.26 per cent of New Intelsat Common Stock as well as providing for $18 million in long-term cash incentive awards.

“The eight most senior executives of the Company (the “Management Committee”) will receive emergence grants representing approximately 1.32 percent of New Common Stock at target as of the Effective Date,” says the Plan.

Other key employees will receive emergence grants representing approximately 1 per cent of New Common Stock, says the Exit Plan.

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