Intelsat Files For Chapter 11 Protection In US Bankruptcy Courts

The satellite communications operator with a fleet of over 50 satellites is reported to have debts of at least US$15 billion, and under Chapter 11 protections will restructure the company in order to better position itself to receive US$4.86 billion in spectrum clearing payments from the US Federal Communications Commission (FCC) by putting its existing C-band customer base into 40 percent of the spectrum it used in 2019. The remainder of that spectrum is due to be auctioned off by the FCC, and Intelsat was a member of the C-Band Alliance – composed of other commercial satellite communications operators – before withdrawing earlier this year. The C-Band Alliance has been lobbying the FCC regarding the proposed legacy 5G spectrum auction and the appropriate compensation satellite operators should receive for giving up their spectrum shares and rights.

Rumours that Intelsat has been considering filing for Chapter 11 bankruptcy protection have been circling since at least February 2020, as the company has come under increasing pressure to restructure and reduce its debt burden.

The proposed restructuring of Intelsat aims to raise US$1.6 billion in capital so that it can build and launch new satellite technology by 2023 that can serve its existing C-band customer base on 60 percent less spectrum. The restricting also aims to reduce the company’s US$15 billion debt by at least half, as well as ensure that it receives the substantial FCC spectrum clearing payment.

Intelsat managed to secure US$1 billion debtor-in-possession financing at the same time of its Chapter 11 filing in order to pay for the continuation of business operations while it restructures. The company accrued its large debt nearly a decade ago when it was subject to a leveraged buyout, and has posted losses over the past three years. The impact of the Coronavirus pandemic on the global economy has compounded the ability of Intelsat to service its debt obligations.

Intelsat along with other members of the C-Band Alliance had initially intended to sell their shares of, and rights to, the C-band spectrum in the United States and reports indicate that Intelsat could have accrued as much as US$24 billion if it had been permitted to do so. It transpired, however, that Intelsat and other companies did not have the right to sell their spectrum share and rights on the open market, and so instead the FCC created a mechanism in which each company can be compensated up to US$4.9 billion for giving up 60 percent of their C-band spectrum allocation. The FCC views the C-band spectrum as essential for the US transition to 5G networks and once the transition from satellite operators to the FCC is completed in 2023, the spectrum resources will be auctioned off to wireless communications companies seeking to offer 5G services in the United States.

The transition, however, will cost Intelsat at least US$500 million a year and it would not qualify for FCC compensation until 2021 at the earliest. As a result, Intelsat’s debt burden has placed the company in a difficult position.

“Despite its entitlement to receive up to $4.9 billion in clearing payments …the company was forced into bankruptcy as its over-levered balance sheet and the financial impact of Covid-19 caused it to be unable to fund the significant costs associated with clearing the C-Band while servicing its existing debt, remaining in compliance with covenants and meeting operating requirements,” wrote Matt Zloto and Charlotta Chung, analysts at CreditSights, and quoted by Barron’s.