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Satnews Daily
April 16th, 2020

Forrester Reports: Eutelsat Could "Outperform" + Intelsat's Bond Bust

Chris Forrester

Chris Forrester has filed a story at the Advanced Television infosite that relates that, last week, Eutelsat issued an update to its guidance for the year and, in particular, noting the impact of the Coronavirus, announced a 30 percent cut in the company's annual dividend.

Analysts at Berenberg Bank have now crunched the new information and, in an April 14th note, state that the effects of the update are “very manageable” and suggest that Eutelsat’s balance sheet remains strong and the bank issued a “Buy” recommendation, which they say investors should not ignore, given the remaining 9 percent dividend yield.

The bank says the dividend cut was a “measure of prudence” by Eutelsat and that the operator’s stable-to-progressive dividend policy will be resumed as soon as circumstances permit, given the company’s ‘resilient cash-flow generation and robust financial health’.” The bank’s message to investors is that Eutelsat is likely to outperform in volatile markets.

Looking in detail at Eutelsat’s revenue picture and debt obligations, the bank says: “Eutelsat’s leverage sat at 3.2x at end-December 2019, which we forecast to fall before year-end, providing substantial headroom to its 4.0x debt covenant. It has no maturities before June 2021 (€500 million bond), combined with a strong liquidity position at end-December 2019 with cash of €373 million and undrawn credit lines of €798 million, of which €300 million was drawn in the course of March in order to give additional security.”

Berenberg added, “We also believe that a strong relationship with the French government (and state-backed shareholding) means there are political considerations also taken into account in this decision.”

Forrester also filed a report that Intelsat’s bonds, already significantly depressed in value, fell dramatically on April 14 as news of a contemplated Chapter 11 restructuring emerged.

Back in October, Intelsat's 8.5 percent interest bonds were trading at just below their 100 cents on the dollar issue price. On April 11, they fell a further 4.8 percent in value to just 56.9 cents and, at one point, were touching 50 cents in value.

JPMorganChase is looking to raise about $750 million in fresh borrowing for Intelsat as the company likely enters Chapter 11 under ‘debtor in possession’ trading. There is also some talk of Intelsat seeking a debt-for-equity swap with its creditors. The fresh cash is needed to fund Intelsat’s obligations under the FCC-based C-band auction planned for December this year. One analyst suggests that Intelsat had some $810 million jn its own cash reserves as at December 31st 2019.

Bloomberg News says that Intelsat needs to spend more than $1.5 billion (and it could be as high as $2.5 billion) to prepare its client’s teleports and dish equipment in readiness for the shift to new frequencies and satellites. This work would be carried out over three years and if wrapped on time would qualify for full repayment as well as a $4.8 billion compensation/incentive payment by the FCC.