Intelsat/PanAmSat mega-deal downsized to $2.9 billion, restructured with bridge loan addition

By Paul Deckelman

New York, June 16 - The gigantic multi-part bond deal being brought to market by merging satellite communications operators PanAmSat Holding Corp. and Intelsat Ltd. was heard to have been downsized and restructured with the addition of a bridge loan component, high yield syndicate sources said late Friday. That bond deal had been expected to price Friday, but is now seen likely to do so on Monday.

The sources said that the overall size of the complex deal was reduced to $2.915 billion from $3.515 billion previously.

The biggest portion of the deal - $2.19 billion of fixed- and floating-rate notes being issued by Intelsat's holding company subsidiary, Intelsat (Bermuda) Ltd., will now come in at a downsized $1.59 billion, with the size of the fixed- and floating-rate tranches to be determined at the time of pricing.

The other $600 million will now be in the form a bridge loan, the sources said. Like the holdco bonds, the bridge loan will not be guaranteed, as another part of the deal is.

The other components of the deal are unchanged in size - a $575 million tranche of 10-year senior notes, non-callable for the first five years after issue, from PanAmSat Corp., the operating company subsidiary for PanAmSat Holding Corp., and a $750 million tranche of 10-year senior notes, non-callable for the first five years, being brought by Intelsat (Bermuda) Ltd., but guaranteed by Intelsat's operating company subsidiary, Intelsat Subsidiary Holding Co.

The tinkering around with the bond deal's size and structure is another indicator of apparent investor reluctance to sign onto the mega-deal in its original form.

On Thursday, syndicate sources said that revised - and somewhat wider - price talk was heard on all of the tranches, indicating that the company and its underwriters were forced to sweeten the terms in order to pass muster with the potential buyers.

Those sources said that the PanAmSat portion of the deal is now likely to price to yield in the 9% area, after having been previously talked in a range of 8¾% to 9%.

The guaranteed tranche of the Intelsat (Bermuda) portion of the deal is now expected to yield around 9¼% - wider than the 8¾% to 9% range at which the notes were originally expected to price.

The sources said that Intelsat (Bermuda) was also likely to price its 10-year non-guaranteed fixed-rate senior notes to produce a yield in a range of 11% to 11¼%, up from the 10¾% to 11% anticipated yield initially talked about. It is expected to price the non-guaranteed seven-year floating-rate senior note tranche to yield between 575 and 600 basis points over Libor. There was no indication of any earlier talk on that latter tranche.

Deutsche Bank Securities, Citigroup, Credit Suisse, Lehman Brothers and Merrill Lynch & Co. will serve as joint book-running managers on the PanAmSat portion of the blockbuster deal, with Goldman Sachs & Co., Bear Stearns, BNP Paribas, JP Morgan and Royal Bank of Scotland as co-managers. The Intelsat part of the deal has the same bookrunners and co-managers, except that Merrill Lynch will serve as one of the co-managers rather than as one of the joint bookrunners.

The deal is being brought to market under Rule 144A and Regulation S. It has been marketed to potential investors via a roadshow which began on June 6 and which ran through Thursday.

The proceeds will be used, along with cash on hand, to fund the acquisition of Wilton, Conn.-based PanAmSat by Intelsat, which is based in Pembroke, Bermuda and in London.

The two satellite communications companies announced on Aug. 29, 2005, that Intelsat will acquire PanAmSat for $25 per share in cash, or $3.2 billion, with another approximately $3.2 billion in debt of PanAmSat and its subsidiaries to remain outstanding or be refinanced. On May 26, PanAmSat announced that Justice Department antitrust regulators had given the two companies the green light to proceed with their merger. Closing of the merger transaction is subject, among other things, to the receipt of the needed financing by Intelsat, and to obtaining regulatory approval from the Federal Communications Commission. All other regulatory approvals required prior to closing have been obtained, PanAmSat said.

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