Satmex Bonds May Yield Above 10% in Restructuring: Mexico Credit

Satelites Mexicanos SA may pay the highest yield on a dollar bond offering by a Mexican company in almost two years as the satellite operator seeks to emerge from bankruptcy protection for the second time since 2006.

Investors will demand a yield as high as 12 percent on the overseas bonds, said Roberto Sanchez-Dahl, who oversees $1 billion of emerging-market debt at Federated Investment Management Co. in Pittsburgh. The yield, which would be the highest for a Mexican company since Servicios Corporativos Javer SAPI paid 13 percent in July 2009, compares with average corporate dollar borrowing costs of 6.29 percent, according to data compiled by JPMorgan Chase & Co. and Bloomberg.

Satmex, as the Mexico City-based company is known, is seeking to persuade investors to buy the bonds after its failure to sell itself to EchoStar Corp. and difficulty adding customers that pushed the company into bankruptcy in April. The company, which also filed for bankruptcy protection in 2006, plans to sell $325 million of five-year bonds abroad, according to Moody’s Investors Service. Similar-maturity dollar notes from Intelsat Jackson Holding, a Luxembourg-based satellite operator, yield 8.17 percent.

“The short-term problems can be reduced, but the operating outlook continues to be a problem and there are too many unresolved questions,” Sanchez-Dahl said in a telephone interview. “A yield that compensates investors for all their risk is negative for the company.”

9% - 9.5%

Satmex is seeking a yield of 9 percent to 9.5 percent, said a person familiar with the terms of the sale who asked not to be named because the discussions are private. The company plans to use proceeds to repay creditors as part of a U.S. bankruptcy court-approved restructuring plan and to launch a new satellite.

The company’s 10.125 percent dollar bonds due in 2013 fell 1 cent on the dollar to 49 cents when it last traded on April 13, according to Bloomberg data. The bonds have returned 24 percent this year.

The Mexican government sold its stake in Satmex earlier this year and said it may hire Boeing Co., Loral Space & Communications Inc. or Thales SA to build two satellites for its new space agency. Satmex sells video and data transmission capacity to phone and Internet companies and satellite network capacity to government security agencies.

Satmex may struggle to generate cash to boost solvency after customers migrated to competitors, said Jose Otero, an analyst at Signals Telecom Consulting in Montevideo, Uruguay.

Annual Profits

“All they have left of value are the orbits, and if they don’t meet their obligations, they could lose them too,” Otero said in a telephone interview, referring to the company’s license to position its satellites. “If you don’t use your orbits, it’s easy for them to take them away.”

Satmex Chief Financial Officer Luis Stein was traveling yesterday and couldn’t be reached for comment. Chief Executive Officer Patricio Northland didn’t return a phone message left with an assistant.

Satmex has failed to turn an annual profit since emerging from bankruptcy in 2006, hampered by an inability to boost sales enough to cover its interest expenses.

Creditors approved the company’s debt sale and an equity offering of the reorganized equity of about $96.25 million as part of the pre-approved restructuring.

Satmex also filed bankruptcy in August 2006 in New York and exited that December after it won approval from the court to repay creditors that were owed about $743 million with new debt and equity.

The extra yield investors demand to own Mexican government dollar bonds instead of U.S. Treasuries narrowed 2 basis points today to 138, according to JPMorgan.

Ratings Outlook

The cost to protect Mexican debt against non-payment for five years fell 1 basis point to 102, according to CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.

The peso rose 0.6 percent to 11.6792 per U.S. dollar at 5 p.m. New York time.

Yields on the interbank rate futures contract due in September rose 2 basis points to 5.03 percent, indicating traders expect a rate increase that month. In the past five years, the gap between the 28-day TIIE and the overnight rate has averaged 36 basis points.

The central bank kept its benchmark interest rate unchanged at a record low of 4.5 percent on April 15.

Moody’s may boost Satmex’s credit ratings if the company gains new customers amid rising demand for satellite services, according to analyst Nymia Almeida. Satmex is rated B3, six levels below investment grade.

Chapter 11

“The demand is there for satellites,” Almeida said in a telephone interview from Mexico City. “If everything goes well in the next two or three years, there could even be a possible upgrade.”

Satmex has $441.6 million in assets and $531.6 million of debt as of March 23, according to Chapter 11 documents filed in U.S. Bankruptcy Court in Wilmington, Delaware. The company will use proceeds of the bond sale to repay first-priority note holders, who have $238.2 million in debt, and fund completion of a satellite set to launch in 2012.

“Right now they can’t generate enough revenue or Ebitda to cover this,” Federated Investment’s Sanchez-Dahl said. “We got out of the bonds because the situation is just too complicated.”

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