SatelliteFinance understands that Intelsat is in the process of simplifying its capital structure, refinancing its debt and bringing in new equity funding as it prepares to bid for its FSS peer Telesat.
Sources close to the deal suggest that Intelsat,…
SatelliteFinance understands that Intelsat is in the process of simplifying its capital structure, refinancing its debt and bringing in new equity funding as it prepares to bid for its FSS peer Telesat.
Sources close to the deal suggest that Intelsat, along with its private equity owners BC Partners and Silver Lake, is currently in talks with three sovereign wealth funds – two from Asia and one from the Middle East – as well as at least two sponsors over an equity investment in the company which in turn would give it the necessary financial clout to fund a bid for Telesat. The Canadian firm has been valued at around US$6.5bn.
The two Asian SWFs are believed to be GIC of Singapore and CIC of China while the Middle Eastern fund is unknown. Each investor would take a stake of less than 10%, which should enable any deal to be passed by the US Department of Justice, according to one source. The interested private equity firms are also unknown but have had experience investing in the satellite sector.
At the same time, Intelsat has moved to restructure its debt profile and is seeking to refinance substantially all of the existing indebtedness of Intelsat Corp as well as the senior secured credit facilities of Intelsat Sub Holdco.
To that end, Intelsat is planning to raise approximately US$3.25bn through a mix of loans and bonds to replace the senior secured credit facilities held by its Intelsat Corp and Sub Holdco subsidiaries.
The new facility, which will be taken out via Intelsat Jackson, will comprise a US$2.35bn term loan B, a US$500m revolver that would be undrawn on closing and a senior secure note offering of around US$500m. The senior term loan is expected to have a tenor of approximately 7.25 years and pay an interest of a Libor floor of 1.5% plus 375 to 400bp. The revolver is set to mature in five years, while the senior secured note will be around eight to ten years in length.
The existing debt that the new facility will replace consists of Intelsat Sub Holdco’s US$332m outstanding of senior secured term loans due 2013 and Intelsat Corp’s US$1.72bn outstanding of senior secured term loans due 2014 and US$151m outstanding of senior secured term loans due 2012. A tender offer for Intelsat Corp’s US$581m 9.25% senior unsecured notes due 2016 is also set to take place concurrently with the refinancing.
The remaining piece of Intelsat Corp debt, the US$112m of 9.25% senior unsecured notes due 2014, were previously stripped of the covenants restricting their being moved to under Intelsat Sub Holdco.
The satellite operator issued invitations to its existing group of lending banks on 3 December with a meeting on the 7th and indications due by the 15th. The senior secured bond is expected to be launched at the same time. BofA Merrill Lynch is the mandated lead arranger for the refinancing with Credit Suisse and JP Morgan lead arrangers.
As part of the reorganisation process, Intelsat recently filed applications with the FCC to transfer control of all of the licences held by the company’s five licensee subsidiaries. Intelsat stated: “The applications are being made in connection with the company’s intention to enter into a series of internal transactions and related steps that would reorganize the ownership of the company’s assets among its subsidiaries and effectively combine the legacy businesses of Intelsat Sub Holdco and Intelsat Corp in order to simplify the company’s operations and enhance the company’s ability to transact business in a more efficient manner.”
The FCC process is estimated to be completed by mid-January, a similar date to when the refinancing is expected to close.
Big four becomes three?
At first glance the plausibility of Intelsat acquiring one of the other three global satellite operators seems rather unlikely. Over the past five years the company has been the subject of two leveraged buyouts and completed the debt-backed transformational acquisition of PanAmSat in 2006. These transactions loaded the company with a substantial amount of debt and, while it has continued to grow impressively, the increased revenues and EBITDA have predominantly been used to service that debt.
However, one banker argued that in spite of this burden, Intelsat was still in a good position to move for Telesat and that it was the best fit for the Canada-headquartered company.
“If Intelsat raises the necessary equity then the leverage will not be a problem as long as it is successfully reorganised. Intelsat is going full blazes to buy Telesat and it is the deal that Dan Goldberg (Telesat’s CEO) wants,” the source remarked.
As to the potential regulatory hurdles, both in terms of antitrust issues and the restrictions under the Investment Canada Act, one well placed SatelliteFinance source suggested it was not as much of an issue as it may initially appear. He stated that the Department of Justice issues were reasonably easily addressable, with Intelsat actually operating very little business in Canada and vice versa with Telesat in the US. While the Canadian ownership part may prove trickier, the source suggested that a potential merger with Intelsat would still be expected to get the green light.
When Telesat revealed at the beginning of November that it was conducting a strategic review that could result in an IPO of the business, SatelliteFinance reported that a sale to a strategic buyer was seen as the more likely outcome. Of the potential bidders, both Eutelsat and EchoStar were mooted but it now seems that Intelsat has jumped to the front of the queue. One source remarked: “Intelsat is far and away the most likely buy side candidate. While Telesat’s owners Loral will want a competitive process, it is hard to look past Intelsat.”
Bank of America is understood to be advising Intelsat on both its equity financing plans and the potential Telesat bid, with Milbank Tweed Hadley McCloy acting as its legal counsel. Credit Suisse and JP Morgan are understood to be advising both Loral and Telesat.
Intelsat would not comment on the equity financing or its rumoured interest in Telesat.
