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Intelsat Seeks to Cut Bond, Loan Obligations to Boost Equity

Intelsat SA (I), the largest issuer of speculative-grade bonds in the U.S. this year, is seeking to reduce debt that will help boost equity returns, according to Chief Financial Officer Michael McDonnell.

The world’s biggest satellite services business may cut its debt relative to earnings before interest, taxes, depreciation and amortization to as little as 5 times from 7.5 times over the next few years, McDonnell said during a July 11 telephone interview. The Luxembourg-based company has sold $6.1 billion of notes this year to pare borrowing costs.

Intelsat raised $572.5 million in a U.S. initial public offering and through the sale of preferred convertible shares in April in an effort to decrease its $15.3 billion in bond and loan obligations, according to Dianne VanBeber, a company spokeswoman. This year’s debt offerings will diminish annual interest payments by $240 million, McDonnell said.

“We’ve got no significant maturities until 2018, largely as a result of the IPO we did and refinancing activity,” McDonnell said. “There are significant returns for our equity investors as we delever the business.”

A target for repayment may be a $3.2 billion term loan B due April 2018, which can be prepaid at 101 cents on the dollar now and at par after Oct. 1, according to McDonnell. A $500 million note due November 2019 may be refinanced or repaid at 104.25 cents on the dollar in November 2014, when it can be called, he said.

Equity Value

By retiring the bonds and loans “you’re using the free cash flow of the business to retire debt that sits in front of equity, thus growing the value of the equity,” McDonnell said.

Intelsat, which sold 19.3 million shares for $18 each in its April 18 IPO, had leverage of 7.94 times as of March 31, the highest among telecommunications services companies in the U.S. or Western Europe, according to data compiled by Bloomberg. The average ratio among companies in the industry was 3.1 times.

The $500 million of 8.5 percent notes due 2019 traded at 110 cents on the dollar July 11 to yield 6.53 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The company’s shares fell 1.19 percent to $20.59 at 11:08 a.m. in New York. They’ve gained 14.6 percent since the offering.

Intelsat was established in 1964 as the first commercial satellite-services provider, according to its website. A group of private-equity funds led by BC Partners Ltd. and Silver Lake Management LLC acquired Intelsat in a 2008 buyout that valued the satellite operator’s equity at about $5 billion.

To contact the reporter on this story: David Holley in New York at dholley8@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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