Eutelsat hit by ratings downgrade
June 15, 2023
Moody’s Investors Services has downgraded Eutelsat’s credit and debt rating, and cautions that further downgrades could be applicable once Eutelsat completes its merger with OneWeb.
The June 15th downgrade is to Ba1 from Bss3, and covers the ratings on Eutelsat’s senior unsecured debt instrument ratings issued by Eutelsat SA, including the €800 million and €600 million bonds maturing in October 2025 and July 2027.
Concurrently, Moody’s has withdrawn Eutelsat SA’s Baa3 long term issuer rating and subsequently assigned a Ba1 long term corporate family rating (CFR) and a Ba1-PD probability of default rating (PDR) to Eutelsat Communications SA, in line with the rating agency’s practice for corporates with non-investment grade ratings.
“The ratings for Eutelsat SA and Eutelsat Communications SA remain on review for further downgrade, pending the completion of the proposed acquisition of OneWeb, originally announced on 26 July 2022. Any further rating downgrade will likely be limited to one notch, reflecting a combination of weaker credit metrics and execution risk arising from the merger, partially offset by increased diversification and stronger growth prospects,” says Moody’s.
“The downgrade to Ba1 reflects the prolonged deterioration in Eutelsat’s credit metrics due to reduced earnings owing to the challenging operating environment for satellite operators,” said Ernesto Bisagno, a Moody’s VP/Senior Credit Officer and lead analyst for Eutelsat.
“The rating remains placed on review for further downgrade because of the further potential deterioration of Eutelsat’s credit metrics if OneWeb’s acquisition is completed as planned,” added Bisagno.
“The rating action reflects the prolonged deterioration in Eutelsat’s credit metrics due to reduced earnings owing to the challenging operating environment for satellite operators. Moody’s changed the outlook on Eutelsat SA to negative in March 2020 and since then, revenues and EBITDA have been declining, with Moody’s adjusted leverage remaining at around 4.0x, above the 3.5x maximum leverage tolerance for the previous Baa3 rating,” said Moody’s.
“Management guided that, from June 2023, the combined entity’s EBITDA will grow at a mid-teen compound annual growth rate (CAGR) over the medium to long term, outpacing sales growth, with the EBITDA margin gradually returning to Eutelsat’s level. However, free cash flow will remain negative over the period 2023-26 because of an increase in capex related to OneWeb’s Gen-2 constellation. Pressure on free cash flow will be partially offset by the suspension of dividends over 2023-25; the company indicated it plans to bring back reported leverage to 3.0x over time,” concluded Moody’s.
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