Scrap with Aurelius sparks Intelsat’s $490 million private placement of 9½% secured notes

By Paul A. Harris

Portland, Ore., June 30 – Allegations of potential events of default in the capital structure of Intelsat SA, made by Aurelius Capital Management, LP, led subsidiary Intelsat Jackson Holdings SA to raise cash via a $490 million private placement of 9½% senior secured notes, an informed source told Prospect News.

The notes were priced at 98.00.

Those bonds were trading at 104½ bid, 106 offered on Thursday, according to a trader.

The market’s perception that terms on the new secured notes needed to be fixed prior to the end of June, when a forecast decline in EBITDA would cause Intelsat’s senior secured debt basket to shrink, were only partially true, the informed source maintained, adding that there is a grace period extending beyond the end of June during which the present quarter’s numbers may still be used.

However EBITDA is expected to decline, going forward, the source conceded.

The company had a desire to complete the current portion of its liability management, which includes tender offers for its 6 5/8% notes due 2022, its 5½% notes due 2023 and its 7½% notes due 2021, before the end of the second quarter, the source said.

The cash from the $490 million private placement was needed to help fund the tender.

It was the possibility of litigation with Aurelius or other lenders that precluded Intelsat from approaching the high-yield primary market with an underwritten Rule 144A or public bond offering, the source said.

The high-yield market has recently demonstrated a vigorous appetite for Intelsat Jackson Holdings bonds, the source asserted.

On March 21 the company sold $1.25 billion of 8% senior secured notes in “a very successful transaction that was eight-times oversubscribed,” the source said.

An add-on deal to raise the cash necessary to fund the tenders would have been a natural course to follow.

However potential litigation over the Aurelius contentions, coupled with anticipated increases in the cost of issuing junk bonds amid risk aversion that took hold in the wake of the United Kingdom's “Brexit” vote, prevented Intelsat from raising the cash via an add-on, the source said.

The bone of contention between Intelsat and Aurelius is the financing of a dividend that Intelsat Jackson paid to Intelsat LuxCo. Aurelius asserts that the dividend financing ran afoul of covenant language in Intelsat's credit agreement, an assertion that Intelsat contests.

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