Intelsat files bankruptcy, wants to participate in spectrum clearing

By Caroline Salls

Pittsburgh, May 14 – Intelsat SA and some of its subsidiaries filed Chapter 11 bankruptcy on Thursday in the U.S. Bankruptcy Court for the Eastern District of Virginia to complete a financial restructuring that will position it for long-term success and enhance liquidity and will likely result in a substantial reduction of its legacy debt burden, according to a news release.

Intelsat said one of the primary catalysts for restructuring the balance sheet now is its desire to participate in the accelerated clearing of C-band spectrum under a Federal Communications Commission order in support of a build-out of 5G wireless infrastructure in the United States.

To meet the FCC’s accelerated clearing deadlines and ultimately be eligible to receive $4.87 billion of accelerated relocation payments, Intelsat said it needs to spend more than $1 billion on clearing activities, which will start long before costs begin to be reimbursed.

The company said it is also managing the economic slowdown impacting several of its end markets caused by the Covid-19 global health crisis.

“This is a transformational moment in the history of our company,” chief executive officer Stephen Spengler said in the release. “Our success has come despite being burdened in recent years by substantial legacy debt. Now is the time to change that.

“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. 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.”

The company said Intelsat General (IGC), which serves its U.S. commercial, government and Allied military customers, is not part of the Chapter 11 proceedings.

Intelsat said its day-to-day operations, engagement with customers and partners, as well as capital investments, will continue as usual. No changes to the company’s operations or workforce are planned.

DIP financing

In conjunction with the bankruptcy filing, Intelsat has secured a commitment for $1 billion of debtor-in-possession financing, which, 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.

Up to 80.58% of the DIP financing commitments will be made available to holders of pre-bankruptcy secured debt. As consideration for the commitments, commitment parties will receive a 2.5% cash put option premium.

The financing will mature 14 months after the bankruptcy filing date, subject to two six-month extensions.

The DIP facility will pay interest at the Base rate plus 450 basis points or Libor plus 550 bps.

The company also requested court approval to use the cash collateral of pre-bankruptcy collateral trustee Wilmington Trust, NA to provide liquidity during the restructuring process.

In addition, Intelsat filed a series of customary motions to allow it to maintain business-as-usual operations and uphold its commitments to its stakeholders, including employees, customers and vendors, during the restructuring process.

Debt details

According to court documents, Intelsat had $11,651,558,000 in total assets and $16,805,844,000 of total debt as of April 1.

The company’s largest unsecured creditors are U.S. Bank NA of St. Paul, Minn., with a $3.075 billion 8½% notes claim, a $1.985 billion 5½% notes claim, a $1.885 billion 9¾% notes claim, a $1.25 billion 9½% notes claim, a $421.22 million 7¾% notes claim and a $402.5 million 4.5% convertible notes claim; Wells Fargo Bank NA of San Francisco, with an $8.883 billion 8 1/8% notes claim; Ministry of PTT in Algiers, Algeria, with a $9.63 million legacy shareholder claim; Iraq Telecommunications & Post Co. of Baghdad, with a $6.58 million legacy shareholder claim; and the Boeing Co., based in Chicago, with a $6.28 million satellite performance incentives claim.

The company said in an 8-K filed with the Securities and Exchange Commission that Intelsat SA, Intelsat Investment Holdings Sarl, Intelsat Holdings SA, Intelsat Investments SA, LuxCo and Intelsat Connect Finance SA voluntarily released their obligations related to guarantees under indenture agreements with Intelsat Jackson and 5½% senior notes due 2023, 8½% senior notes due 2024 and 9¾% senior notes due 2025 trustee U.S. Bank.

Intelsat said it also released guarantees under indenture agreements with LuxCo and 7¾% senior notes due 2021 and 8 1/8% senior notes due 2023 trustee U.S. Bank.

Kirkland & Ellis LLP is serving as legal counsel, PJT Partners LP is serving as financial adviser, and Alvarez & Marsal is serving as restructuring adviser to the company.

Intelsat is a Luxembourg City, Luxembourg-based satellite telecommunications company. The Chapter 11 case number is 20-32299.

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