Intelsat has raised approximately US$471.7m from its initial public offering on the New York Stock exchange. The amount is notably less than it had planned after it sold fewer common shares and at a lower price than anticipated.
In the end, the…
Intelsat has raised approximately US$471.7m from its initial public offering on the New York Stock exchange. The amount is notably less than it had planned after it sold fewer common shares and at a lower price than anticipated.
In the end, the satellite operator sold 19,323,672 common shares, around 2.4 million less than the planned amount, and at US$18 per share, below the US$21 – 25 pricing range. The offering raised US$347.8m or US$328.8m after deducting the underwriting discounts, commissions and expenses.
However, the company did sell the full amount of its Series A mandatory convertible junior non-voting preferred shares, 3 million, at a price of US$50.00 per share thereby raising US$150m, US$142.9m after underwriting expenses.
Net proceeds are to be used to repay a portion of the company’s debt, which stood at approximately US$15.9bn as of 31 December 2012. In addition, US$39.1m will be paid to the company’s private equity owners BC Partners (71.9%) and Silver Lake (15.87%) as a fee in connection with the termination of the ‘monitoring fee agreement.’
The common share offering is expected to close on or about 23 April 2013, while the closing of the preferred share sale is conditional upon the completion of the former.
Intelsat, which will trade under the symbol ‘I’, has granted the underwriters a 30-day option to purchase up to an additional 2,898,550 common shares and 450,000 Series A preferred shares.
The mandatory conversion date for the preferred shares is 1 May 2016 when they will automatically convert into common shares. The shares will have a 5.75% dividend rate and a liquidation preference of US$50.00 per share.
All of the existing shareholders are subject to a standard 180 day lock-up on their holdings.
Goldman Sachs, JP Morgan, Morgan Stanley and BofA Merrill Lynch are acting as joint book-running managers and underwriters, with Barclays Capital, Credit Suisse, Deutsche Bank, Nomura and UBS book-runners. Evercore Group, HSBC, RBC Capital Markets, LionTree Advisors and Raymond James are acting as co-managers for the offerings.
‘We’re in it for the long term’
In the company’s first interview since going public, Intelsat’s chief financial officer Mike McDonnell was upbeat about the flotation despite the company’s shares pricing below the indicative range and then falling further on initial trading.
McDonnell told SatelliteFinance: “I think that in light of everything that the markets have had to digest, particularly this week, we’re just very pleased to be out. I think that the way we sized the deal puts us at about 25% of the company that was sold, which is pretty standard and typical for an IPO, and we weighed all the factors in terms of pricing and sizing and landed in spot that is very comfortable for us.
“The decision with regard to the size of the offering was made in very close consultation with our financial sponsors and banks”
As to whether the company had considered pulling the process given the market instability of recent days, McDonnell said that it had not been a consideration.
“No, we’re in this for the long term. We have a lot of confidence in terms of our ability to deliver value for all of our shareholders (both the 75% held by our existing shareholders and the 25% sold through the IPO) and we’re happy to be here.
“We had great receptivity across the board. We had extremely well attended meetings, particularly the group meetings and the launches that we hosted, and we were very pleased with the quality of the book. We ended up with some European investors as well as US so it was very balanced.”
McDonnell added that the company’s strong relationship with its bondholders had opened up an additional equity investor group.
“We have established very good, long term relationships with many of our bondholders and a lot of those are institutions that are very large and can also play in equity. So we utilised those relationships and we are very pleased to get a number of those institutions in our equity as well.”
Unlike the common shares, the convertible preferred shares sold their full allocation and at that their US$50 per share value, so did Intelsat consider increasing the number of these kind of shares issued? “I think we were pretty happy with the sizing of the convert in terms of where we started and where we ended.”
Proceeds from the offering will predominantly be used to pay down debt and McDonnell explained that the company will continue its strategy of reducing its substantial leverage and only seek to pay dividends to its shareholders once it has reached a more comfortable level.
He said: “We’ve done an extraordinary amount of work in refinancing our capital structure. As you know, we have been in a great rate environment for some time and we have refinanced about US$16.5bn of debt over the past two and a half years and we’ve said publically that we expect to refinance up to approximately US$2bn shortly following the IPO.
“That will take a lot of interest cost out of our structure and we will exit the IPO at roughly seven and a half turns leverage and long term we think that a normalised level will be somewhere between five and six turns. So initially we will not be paying a dividend. We’re providing returns in the form of deleveraging the business and retiring debt with the significant free cash flow that we expect to have. And as we start to get down to those levels that is the time we would start thinking about introducing a dividend.
“It is about US$2bn per turn so it will take some time to do this. It is much more of a medium to long term target as opposed to a short term one.”
Indeed, this long term strategy was something McDonnell sought to emphasize, stating: “The beauty of our business is that it is very much a long term, long cycle business and the turbulence that we had this week we were pleased to be able to move through it and we factored everything in and we’re very pleased with the sizing and where we landed.”
