Intelsat convertible noteholders seek to prosecute intercompany claims

By Sarah Lizee

Olympia, Wash., Feb. 8 – An informal group of holders of Intelsat SA’s 4.5% convertible senior notes due 2025 are seeking leave, standing and authority to prosecute intercompany claims and causes of action establishing the entitlement of Intelsat to “accelerated relocation payments” made available under the Federal Communications Commission order released on March 3, 2020, according to a motion filed Friday with the U.S. Bankruptcy Court for the Eastern District of Virginia.

The group said that at the heart of the cases is the question of which debtor estate is entitled to more than $4.8 billion of accelerated relocation payments available under an FCC order adopted in the months before the debtors entered bankruptcy.

The accelerated relocation payments equal almost one-third of the debtors’ funded debt entering Chapter 11 and are almost five times the debtors’ consolidated annual earnings, the group said.

From the outset, the estate of debtor Intelsat Jackson Holdings SA and its creditors have “attempted to lay claim to the accelerated relocation payments and lock up their potential value to the detriment of the other debtor estates,” the group said.

The debtor-in-possession credit agreement was purported to include concessions requiring that a subsidiary of Intelsat Jackson receive the accelerated relocation payments – not just in an amount necessary to secure and repay the $1 billion of DIP financing, but for all $4.8 billion of those payments.

“All along, the fiduciaries for the other debtor estates did nothing to stop this attempted value grab,” the convertible holders said.

The group said that they fought for and obtained a reservation of rights in the final DIP order to ensure that the DIP credit agreement did not transfer the value of the accelerated relocation payments to Intelsat Jackson.

The group also objected to Intelsat Jackson’s attempt at similar concessions in communications with the Internal Revenue Service.

In its most recent correspondence with the convertible noteholders, the special committee of the board of Intelsat, SA confirmed that it is unwilling to prosecute the intercompany claims.

“The benefits of resolving this inter-company dispute are obvious, not just to the [Intelsat, SA] estate and the convertible noteholders, but to the joint administration of these cases,” the group said.

“The debtors’ estates cannot be valued properly, creditor recoveries and impairment cannot be assessed, and a cloud of litigation uncertainty will hang over these companies post-emergence. These issues must be resolved now.

“And with the estate fiduciaries refusing to take action, the intercompany claims must be brought by the convertible noteholders, as the only stakeholders capable of prosecuting the intercompany claims zealously and without conflict.”

Intelsat is a Luxembourg-based satellite telecommunications company. The company filed bankruptcy on May 14, 2020 under Chapter 11 case number 20-32299.

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