Intelsat Jackson, Aurelius again trade barbs following default notice

By Caroline Salls

Pittsburgh, June 6 – Intelsat Jackson Holdings SA and Aurelius Capital Management, LP, as manager of funds that own Intelsat Jackson’s 7¼% senior notes due 2020, exchanged responses in connection with a May 13 default notice, according to a 6-K filed Monday with the Securities and Exchange Commission.

As previously reported, Aurelius said in a May 13 letter that a restricted payments covenant contained in the indenture bars Intelsat Jackson from paying dividends or making any distributions to parent Intelsat (Luxembourg) SA, except under specified conditions. One of those conditions is that Intelsat Jackson would have a debt-to-adjusted EBITDA ratio of less than or equal to 6.0 to 1.0 immediately after completion of a transaction.

Aurelius said Intelsat Jackson paid a dividend of $360 million to the parent company in the last five business days of September 2015, then borrowed back that same amount from Intelsat Intermediate LLC.

As a result, Aurelius said the September dividend and the intercompany loans that followed violated the restricted payment covenant.

According to a previous letter sent in response to the default notice by Intelsat Jackson, “these assertions are baseless.”

Intelsat Jackson said its debt-to-adjusted EBITDA ratio was less than 6.0 to 1.0 after the transaction in question.

The company said Aurelius’ letter “also contains other material errors, including factual misstatements, which need not be addressed here in light of the basic error in your reading of the indenture.”

“Please be advised that Jackson and its affiliates reserve all rights and remedies relating to your conduct and the resulting harm to our company, including your baseless assertion of a default, the misstatements in your letter and the public dissemination of the letter,” Intelsat Jackson said in its letter.

Aurelius responds

On May 31, Aurelius sent a letter responding to Intelsat Jackson’s views on the issue.

“You assert that the indenture requires ignoring any action occurring after the September dividend, no matter how closely related that subsequent action was to the dividend,” Aurelius said in the May 31 correspondence.

“The position you advance would lead to very different results depending on whether a loan used to finance a dividend occurred an hour before or an hour after the dividend was paid. Such a distinction would defy commercial logic and would make it incredibly easy for Jackson to game the ratio requirement.

“So long as the loan was already arranged, Jackson would maintain exactly the same liquidity regardless whether the loan was made before or after the dividend was paid.”

Latest letter

On Monday, Intelsat Jackson sent another response to Aurelius.

“I am sending this further response to ensure that investors in our company, including lenders and noteholders, do not accept your assertion that we are ‘pretending’ the indenture says something other than it does, or that we ‘do not dispute’ your view of the facts or the law,” Jacques Kerrest said in the letter written Monday on behalf of Intelsat Jackson. “Nothing could be further from the truth.

“The constructive approach taken by the company – including issuance of long-dated secured debt to refinance higher-yield shorter-maturity debt – stands in stark contrast to Aurelius’s approach in publicly claiming a default based on factual misstatements and theories that disregard the terms of the indenture.

“We continue to reserve all rights and remedies relating to your conduct – and the conduct of the supposed [informal noteholder group] in asserting non-existent defaults and making false statements about the September dividend and later transactions.”

Intelsat Jackson is a subsidiary of Intelsat Luxembourg. Both are subsidiaries of Intelsat SA, a Luxembourg-based provider of satellite services that operates out of McLean, Va.

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