Intelsat S.A.

**Update August 25, 2021

Intelsat filed an amended Disclosure Statement in its bankruptcy proceedings that now proposes to extinguish existing equity. While it’s possible that changes, this no longer fits my investment parameters and I’ve exited the position.

THIS IS VERY RISKY! Intelsat is currently in bankruptcy proceedings after filing for Chapter 11 in hopes of undertaking a restructuring.

The company proposed a plan which would seek to reduce debt from almost $15 billion to $7 billion and would dilute existing equity significantly by an unknown amount.

The plan estimates an Enterprise Value (EV) between $10-11.5bn.  With $7bn of projected debt, that would derive an equity value of $3-4.5bn.  For the existing equity, there are 142.1m shares, using my purchase price of $0.52, that’s a current market cap of $74m or 1.6%-2.5% of the plan’s estimated equity value. This is purely an exercise to demonstrate where the current equity is valued in the public market relative to the Plan’s estimated equity value and does not represent an estimate of fair or future value but gives an idea of how the market is pricing in dilution or probability of total equity impairment.

The plan is endorsed by SOME but not all creditors. The immediate risks are the plan fails (or gets altered) and the company goes into liquidation or the dilution is so significant that the current equity is effectively worthless.

I’m rolling the dice with a small position that this plan is either approved or an alternative plan provides value to existing equity given the potentially substantial proceeds from the C-band auction being conducted in the U.S. Until there’s more clarity, this remains a speculative position.

Intelsat is a Luxembourg-registered company that provides satellite-based communication services.

FY20 Revenues expected to be ~1.8bn, down from almost 2bn in FY19 with adjusted EBITDA expected to be 1.3bn.  Because of its crushing debt load, the substantial interest expense has resulted in the company being unprofitable although this plan to halve the debt load could possibly put the company in the black. The debt load is the primary reason I’ve avoided this stock like the plague.

Management anticipates C-bank relocation proceeds ~4.9bn by early 2024 which could further reduce net debt although the plan would include warrants for further equity dilution.  

The company also faces numerous headwinds due to the pandemic and shifts in the communications industry and the company would have to invest for growth which a reduced debt load could enable.