Intelsat has filed to restructure its roughly $15 billion of debt, bringing one contentious chapter of the saga of 5G in the U.S. to a close.
The satellite operator filed for Chapter 11 bankruptcy late Wednesday, and has secured $1 billion of debtor-in-possession financing to help pay for its operations while it reorganizes.
Intelsat (ticker: I) was a founding member of a group that lobbied to lead a private sale of spectrum called the C-Band, which is seen as key for the U.S.’s transition to fifth-generation wireless, or 5G. Officials want satellite operators to free up about 60% of the spectrum for use by wireless companies.
A private sale could have brought in up to $24 billion for Intelsat alone. The only problem is that the satellite operators didn’t have a clear right to sell that spectrum. So regulators rejected the plan, deciding instead to offer incentive payments to satellite operators that clear the spectrum ahead of schedule.
Satellite operators will be reimbursed for the costs of freeing up spectrum, and Intelsat is eligible to receive up to $4.9 billion in incentive payments for clearing spectrum quickly. But the company says it will spend nearly $500 million on the effort just this year, and doesn’t expect reimbursements or incentive fees until 2021.
“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.
Intelsat was under financial pressure even before the pandemic, as Barron’s has covered. The satellite operator was saddled with $15 billion of debt after a leveraged buyout a decade ago, and had posted losses for three years.
The spread of the new coronavirus has made things tougher for the satellite operator, because one of its businesses was providing wireless service to customers on cruise ships and airplanes—two industries where activity has cratered during the pandemic. Intelsat also broadcasts live sports, which have been canceled during the pandemic. The company estimates a $160 million hit to its revenue and cash flow this year.
The company filed in the U.S. Bankruptcy Court in Richmond, Va. . Its stock is down 93% year to date, and was trading down 5.9% at 47 cents per share on Friday.
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