Telesat has announced that it is not going to undertake the special dividend recapitalisation which it first mooted in the wake of the cessation of its potential sales process.
The Canadian satellite operator made the declaration in its third quarter…
Telesat has announced that it is not going to undertake the special dividend recapitalisation which it first mooted in the wake of the cessation of its potential sales process.
The Canadian satellite operator made the declaration in its third quarter results stating that it has ‘concluded not to pursue a significant dividend recapitalization at this time although the company may from time to time continue to evaluate strategic alternatives and explore other refinancing or recapitalization opportunities.’
Speaking on the Q3 results investor call, Telesat CEO Dan Goldberg explained why Telesat was no longer going ahead with the recap plan.
“It is basically your classic cost benefit analysis. Obviously the benefit of doing a big recap is getting cash back to our two shareholders. On the cost side of the equation, the markets have been pretty volatile lately so that was a consideration but that was more a temporal consideration as at some point one would think the markets would stabilise.
“So beyond choppy markets, in order to pay a meaningful dividend to our shareholders in a tax efficient way for our shareholders, it would have entailed us engaging in some complex structuring and there are some strategic constraints and costs that are associated with that going forward, so we took that into account. Also focusing on the cost side, when you add additional leverage to your balance sheet you’re limiting some of the strategic flexibility that you have going forward.
“At the end of the day neither one of our shareholders are really in need of cash and they are both very bullish on how the company is performing and what our growth prospects look like. So having weighed those costs and benefits, we decided that the better course was to not move forward with a big recap,” commented Goldberg.
As to whether Telesat would consider these strategic transactions further down the line, Goldberg said: “The focus at this time is to continue to execute to get all those news satellites up there, continue to try to increase our utilisation, look to secure some additional growth opportunities as we are launching those new satellites. At that point in time we can think about the next steps from a strategic perspective.”
Telesat CFO Michel Cayouette added: “Now that we have concluded not to pursue a significant dividend recapitalisation, we will take a fresh look at our capital structure as well as our future refinancing requirements.”
Back in late 2010, Telesat revealed that the company was to carry out a strategic review that could result in an IPO or sale of the business. The move prompted a flurry of interest from a number of large private equity players including Blackstone, KKR and Providence, while fellow FSS operator Intelsat was understood to have also been considering a bid.
However, in early August 2011, as part of the company’s second quarter results announcement, Goldberg stated that despite receiving a number of takeover offers, none was accepted and that the company would now evaluate other alternatives, including a potential recapitalisation transaction.
In a recent interview with SatelliteFinance, Michael Targoff, the CEO of Telesat’s majority shareholder Loral Space & Communications, said that the recapitalisation would only take place if the market conditions were favourable and that there was no time pressure to get a deal done.
In response to what the future plan would be for Telesat beyond the potential recap, Targoff said: “We will continue to support the growth initiatives that the excellent management can come up with, I wouldn’t see any change in that at all. And then we will, at the right time, consider exploring strategic alternatives as they arise.”
Credit Suisse and JP Morgan have been advising Telesat on the process.
In its third quarter results, Telesat reported a slight decline in both revenues, down 4% year-on-year to C$200m, and adjusted EBITDA, a fall of 3% to C$154m.
The company also suffered a quarterly net loss of C$141m compared to net income of C$146m in Q3 2010. Telesat predominantly blamed this on fluctuations in foreign exchange rates with the Canadian dollar’s weakening against the US dollar having a significant impact given Telesat’s mainly US dollar denominated debt.
Telesat also announced in its results that it had filed an insurance claim of approximately US$125m relating to the anomaly to its Telstar-14R/Estrela do Sul 2 satellite.
Following its launch in May 2011, the satellite’s north solar array failed to fully deploy, diminishing the amount of power available for its transponders and reducing the life expectancy of the spacecraft. The claim is currently under review by the insurers.
Cayouette said that proceeds from the insurance claim would be used either to repay a portion of the company’s credit facility or be reinvested in satellite procurement.
