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Fitch: “Intelsat’s ratings positive”

January 17, 2022

By Chris Forrester

Financial ratings agency, Fitch Ratings, has assigned its verdict on Intelsat’s capital restructuring.

Intelsat is likely to emerge from its Chapter 11 bankruptcy reconstruction shortly and is already in the process of arranging fresh financing and borrowing.

Fitch says it has assigned a ‘B+’ rating on Intelsat’s Jackson Holdings SA sister company with a ratings outlook that is “positive”.

Fitch adds that it has assigned expected instrument ratings based upon the company’s anticipated capital structure at emergence [from bankruptcy]. “A ‘BB(EXP)’/’RR2′ rating has been assigned to Intelsat Jackson Holdings’ $500 million senior secured super-priority revolving credit facility and a ‘BB-(EXP)’/’RR3’ rating has been assigned to the senior secured first-lien term loan B and notes,” adds Fitch.

Fitch says it expects to assign final ratings following Intelsat’s emergence from bankruptcy in early 2022. The expected ratings will be reviewed for material changes prior to Fitch assigning final ratings. Material changes may include changes in the company’s capital structure at emergence, any material deviations from current assumptions, as well as Fitch’s issuance of updated criteria or criteria exposure drafts. Expected ratings, like any other rating, can be raised, lowered, placed on Rating Watch or withdrawn.

Fitch’s view is that Intelsat is one of the largest fixed satellite service (FSS) operators, with a fleet of 52 satellites providing service on a global basis. The company’s revenue is derived from customers in media, mobility, network services and government. Intelsat’s backlog, which provides some insight into future revenues, declined modestly in 2021 to $5.7 billion at September 30, 2021.

“Fitch estimates revenues grew about 7 per cent in 2021, aided by the acquisition of GoGo’s commercial aviation business in December 2020. Revenues are flat to down slightly in 2022, before returning to low single digit growth in 2023, owing to the continued expansion in the mobility line of business, including commercial aviation.”

Under the ‘risk’ category, Fitch cautions that Intelsat must clear the second portion of the spectrum by December 2023 to receive the next accelerated [from the FCC] relocation payment in early 2024. To clear the spectrum, the company is building seven satellites and the related ground structure (teleports and antennas) at a cost of approximately $1.4 billion–nearly all of which will be reimbursed. The payment declines over time should the clearing be delayed after the December 2023 target date. The company has contingency plans in place should there be unforeseen circumstances regarding the launch plans for the seven satellites.

Fitch also highlights that Intelsat has experienced secular pressure on certain revenue streams, particularly the media and network business, while the government business has been relatively stable. “The mobility business—particularly the commercial aviation business–is expected to be a significant driver of growth, potentially offsetting pressures in other areas of the business. There are a number of other subsegments within mobility, including wholesale transponders, maritime and other managed services under the Flex brand,” states Fitch.

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