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Fitch anxious over Eutelsat debt

March 28, 2024

Paris-based satellite operator Eutelsat has successfully raised €600 million in fresh debt. The notes are due for repayment in 2029 and bear an interest rate of 9.75 per cent. Eutelsat says it intends to use the gross proceeds together with cash on hand, to fund the repurchase of its €800 million 2 per cent bonds due 2025.

However, Fitch Ratings are still anxious about Eutelsat’s debt. This particular bond has been rated by Fitch as BB+ but Fitch has maintained its “Long-term issuer default rating (IDR)” and is still assessing the operator as “Rating Watch Negative”. Fitch says: “Eutelsat’s IDR is likely to be downgraded by one notch to ‘B+’ with Negative Outlook [for this bond].”

Fitch explains its current thinking, saying: “The rating changes reflect covenant and cashflow restrictions at Eutelsat created by the legal terms of the company’s proposed new bond. These restrictions have led to an assessment of porous ring-fencing and control based on Fitch’s Parent Subsidiary Linkage criteria. As a result, Eutelsat is rated two notches above the consolidated group profile of ‘BB-‘ and in line with the operating subsidiary’s standalone credit profile of ‘bb+’. The cashflow restrictions lead Eutelsat to be rated one notch below the group’s consolidated rating profile.”

Part of Fitch’s concerns focus on Eutelsat subsidiary OneWeb. Fitch says: “OneWeb will need to find additional funding to finance the roll-out of its next generation constellation as the amount of distributions from Eutelsat to OneWeb are broadly limited to €1.4 billion over the next five years. The company estimated its overall capex for putting in place a new constellation at about USD4 billion.”

Fitch adds: “Delays with rolling out new infrastructure may weaken OneWeb’s longer-term competitive positions as other operators are active in the market. LEO infrastructure competition may intensify over time if new LEO constellations are actively rolled out, supported by multi-billion capex commitments. SES, with Starlink, also started offering integrated medium earth orbit (MEO)/LEO maritime services in direct competition with Eutelsat’s LEO/GEO solutions. Recently OneWeb concluded a €500 million partnership with major global satellite operator Intelsat.”

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