Canada-based satellite operator Telesat has raised US$700m through an offering of senior unsecured notes, due 2017.
The notes carry a coupon of 6% and priced at par, offering a spread of 519bp over Treasuries. The financing took the form of a private…
Canada-based satellite operator Telesat has raised US$700m through an offering of senior unsecured notes, due 2017.
The notes carry a coupon of 6% and priced at par, offering a spread of 519bp over Treasuries. The financing took the form of a private placement via operating subsidiaries Telesat Canada and Telesat LLC and closed on 14 May. SatelliteFinance understands that JP Morgan, Credit Suisse and Morgan Stanley are lead bookrunners on the offering.
Proceeds from the transaction were used to fund Telesat’s cash tender offer for all of its US$693m outstanding 11% senior notes due November 2015. The tender offer is scheduled to expire on 25 May.
Telesat originally issued the 11% notes as well as US$217m of 12.5% senior subordinated notes in mid-2008. The debt was used to replace the US$910m unsecured bridge facility that was used to finance Loral and Canadian pension fund PSP’s C$3.25bn 2007 acquisition.
One banker suggested to SatelliteFinance that given the comparatively short term of the new notes, which are callable after two years, and that there are allegedly certain exemption options in the change of control covenants, the financing has been structured to accommodate a potential future acquisition of Telesat.
Last August, Telesat ended its sales process and chose instead to focus on undertaking a recapitalisation in order to return funds to its shareholders. The potential sale is believed to have attracted interest from a number of private equity players, with a consortium of Blackstone, KKR and Providence believed to have held discussions, while satellite operator Intelsat is also believed to have been interested.
According to ratings agency Moody’s, following the new financing and subsequent debt repurchase, Telesat’s pro forma leverage will be 6.4x debt-to-EBITDA. Moody’s argues that this is somewhat elevated as a consequence of the debt-financed ownership change, the company’s significant capital expenditures and its recent US$700m special dividend.
Moody’s added: “While no additional dividends (or share repurchases) are currently planned, we think that there is the potential of subsequent periodic strategic reassessments as ownership looks for investment returns in advance of a permanent ownership structure developing.”
However, the agency expects that this leverage is likely to decline to the mid-5x range over the next two years given its strong contract back log and the impending launch of Nimiq-6 and Anik-G1 at the end of this year.
In its first quarter 2012 results, Telesat reported a 3% year-on-year fall both consolidated revenue, to C$196m, and adjusted EBITDA, to C$153m.
The company blamed the decrease on a contractual rate reduction on one of its DTH satellites as well as higher operating expenses and the incurrence of a non-cash loss relating to the write-off of deferred financing fees following its US$2.55bn refinancing.
Alongside the forthcoming launches of Nimiq-6 and Anik-G1, Telesat’s president and CEO Dan Goldberg suggested in the company’s results conference call that the company would look to order another satellite later this year in order to replace Telstar-12.