Intelsat files for bankruptcy as market cap plummets to $112m
Intelsat, the 55-year-old satellite company, filed for bankruptcy protection last night, in a move apparently designed to allow it to benefit from a refarming of spectrum in the US.
The company said that Intelsat General, the subsidiary that serves commercial and government customers in the US, and military customers, was not affected. And it said that “operations and capital investments will continue as usual during the process”.
CEO Steve Spengler (pictured) said: “Our success has come despite being burdened in recent years by substantial legacy debt. Now is the time to change that.”
But the company has had a torrid time on the New York Stock Exchange, where its shares have been quoted since April 2013. Last night its shares closed at US$0.79, valuing the company at only $112 million. Only six months ago shares were trading at $26.33, and in October 2018 they were $34.61.
According to Spengler, what has brought about last night’s decision was a plan by the Federal Communications Commission (FCC) to move satellite services such as Intelsat off C-band spectrum – 4-8GHz – so that it could auction it off for 5G mobile services.
That required Intelsat to spend more than $1 billion moving its services off those frequencies, though it would then be eligible to claim back $4.87 billion.
“These clearing activities must start immediately, long before costs begin to be reimbursed,” said Intelsat last night. “The company is also managing the economic slowdown impacting several of its end markets caused by the Covid-19 global health crisis.”
Spengler amplified the situation. “We intend to move forward with the accelerated clearing of C-band spectrum in the United States and to achieve a comprehensive solution that would result in a stronger balance sheet,” he said. “This will position us to invest and pursue our strategic growth objectives, build on our strengths, and serve the mission-critical needs of our customers with additional resources and wind in our sails.”
However satellite operators generally are challenged – especially as geostationary (GEO) satellites are likely to be supplanted by cheaper low-Earth orbit (LEO) satellites within a couple of years.
But even LEO companies are facing difficulties. An ambitious satellite start-up, OneWeb, went into Chapter 11 bankruptcy protection only a few weeks ago, despite its backing from companies such as Airtel, Airbus and SoftBank. It has launched 74 satellites but said that the Covid-19 pandemic was causing turbulence in the market.
Curiously, three years ago OneWeb considered buying Intelsat, but it withdrew after the two companies failed to strike a deal with debtholders over existing Intelsat bonds believed to be worth around $15 billion.
Intelsat said has secured a commitment for $1 billion of new financing. “Subject to court approval, this debtor-in-possession financing, coupled with significant cash on hand and positive cash flow generated by the business, will provide ample liquidity during the restructuring process to support ongoing operations, fund the substantial upfront C-band clearing costs, and allow the company to continue investing in the innovations and services that customers need today and in the future.”
Spengler said: “At the end of this process, we will be on stronger financial footing for the future, further enhancing our industry-leading portfolio of space-based communications services and paving the way for our continued innovation and investments to benefit our customers.”
In many ways, Intelsat was the company that founded the global telecommunications market. It launched its first satellite, Intelsat I, nicknamed Early Bird, in April 1965 – allowing TV programmes and sports coverage to be exchanged across the Atlantic for the first time, and expanding the international voice market.
It was then an international treaty organisation, but it became a private company in 2001,
Four years later four private equity companies bought it for $3.1 billion. Two years further on, London-based BC Partners bought a 76% stake for €3.75 billion.
Intelsat’s shares were floated on the NYSE in 2013, raising $550 million, of which $492 million went to pay off a small fraction of Intelsat’s debts, which then stood at $15.9 billion.