Advanced Television

Fitch further downgrades Eutelsat debt

February 5, 2024

Fitch Ratings has taken another look at Eutelsat’s prospects and downgraded the satellite operator to ‘BB-‘ and with an ‘Outlook Negative’ view because of its “OneWeb challenges”, its higher execution risks, and competition for OneWeb from other LEO constellations. Fitch expects Eutelsat to have to borrow more cash to fund the OneWeb expansion plan.

Fitch’s full statement said: “The downgrade reflects Eutelsat’s significantly higher leverage and slower progress with monetising OneWeb infrastructure following the company’s downward revision of its FY24 (financial year ending June 2024) revenue and EBITDA guidance. The Negative Outlook reflects high execution risks and continuing challenges around meeting the medium-term financial targets at OneWeb with low revenue visibility, along with some refinancing risks by October 2025.”

Fitch goes further, saying the company has high execution risks. “Eutelsat’s guidance revision highlights significant execution risks around its OneWeb strategy and low visibility on its future revenue streams. Demand for low earth orbit (LEO), and in combination with GEO B2B services, Eutelsat’s targeted market niche, remains largely untested and competition may be intense. Eutelsat reported an increase in OneWeb’s third-party revenue backlog to approximately $0.9 billion over a period of five years but it corresponds to only a fraction of the revenue that would allow sustained positive EBITDA generation at this subsidiary.”

“Delays with rolling-out new infrastructure may weaken Eutelsat’s longer-term competitive positions as other operators are active in the market. LEO infrastructure competition will be stiff as a few LEO constellations are being rolled out, supported by multi-billion capex commitments. On top of this, SES in partnership with Starlink has started offering integrated medium earth orbit (MEO)/LEO maritime services in direct competition with Eutelsat’s LEO/GEO solutions,” stated Fitch.

“In addition to a fully operational Starlink, which continues launching new satellites, Amazon’s Kuiper announced plans to launch customer pilots in 2H24 while Canada-based Telesat plans to start providing a global service in 2027, reportedly having secured funding and launches for its LEO project. This is likely to be followed by the EU-sponsored IRIS constellation,” Fitch suggested.

“We estimate that Eutelsat may need to raise significant new capex financing to roll out OneWeb’s Gen 2 constellation even after assuming continuing strong cash flow generation at Eutelsat’s profitable segments (effectively key operating subsidiary Eutelsat S.A.),” added Fitch.

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