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Law360 (May 14, 2020, 11:02 AM EDT ) Intelsat SA and 34 affiliates sought Chapter 11 protection in the Eastern District of Virginia early Thursday, reporting a $14.8 billion secured debt burden, deep revenue losses to the COVID-19 pandemic and a need to restructure in order take part in an ongoing 5G wireless buildout.
Some $1.2 billion will be needed in order for Intelsat to participate in and meet the Federal Communications Commission's deadlines for an accelerated clearing of part of the radio spectrum as part of the nation's 5G initiative, the company said in announcing the move. Success will allow the business to receive some $4.87 billion of accelerated relocation spectrum relocation payment.
"The clearing will require not only multiple new satellites to be procured and launched into service, but will also require the purchase and installation of sophisticated video compression technology and tens of thousands of radio frequency filters," David Tolley, Intelsat's chief financial officer and chief restructuring officer, said in the company's initial Chapter 11 declaration.
Tolley said the effort will be capital-intensive, requiring in part the construction and launch of satellites to replace others specially configured in the past to operate in the now-reallocated portion of the radio spectrum's C-band.
An ad hoc group of secured creditors already has agreed to provide the $1 billion in debtor-in-possession loans needed to to finance the bankruptcy case.
Tolley said the company expects a material decrease in revenues because of the economic impact of the COVID-19 pandemic. Its debt service, meanwhile, has grown to more than 50% of 2019 revenues, prompting the business to not pay a $125 million interest on notes. That triggered a grace period during which the company prepared for bankruptcy.
"At the end of this process, we will be on stronger financial footing for the future, further enhancing our industry-leading portfolio of space-based communications services and paving the way for our continued innovation and investments to benefit our customers," Stephen Spengler, Intelsat's CEO, said in a statement.
In addition to the $14.8 billion in secured debt, the company's petition showed huge amounts classified as unsecured obligations, including $8.9 billion owed to Wells Fargo NA and about $9 billion owed to U.S. Bank NA.
Fitch Ratings senior director Eric Rosenthal said Thursday morning that Intelsat's bankruptcy pushed the trailing 12-month loan default rate to 3.4%, with $10 billion of loan defaults in May alone, the largest amount since Energy Future Holdings retreated into Chapter 11 in 2014.
"The telecom trailing 12-month loan default rate jumps to nearly 8% from 4% at April month-end," Rosenthal said. "Fitch forecasts a 15% cumulative loan default rate average by year-end 2021, with a 5% to 6% rate projected for year-end 2020."
Intelsat said its day to day operations would continue as usual during the Chapter 11 proceedings.
Intelsat's Spengler said that the companies, which operate the world's largest satellite fleet and a global network, had been leaders in the industry for more than 50 years. The company now provides "ubiquitous" broadband connectivity, multiformat video broadcasting, secure satellite communications and mobility services.
"For more than 50 years, we have been respected for quality, innovation, sector leadership and premium services. Our success has come despite being burdened in recent years by substantial legacy debt. Now is the time to change that," Spengler said.
Intelsat is represented by Michael A. Condyles, Peter J. Barrett, Jeremy S. Williams and Brian H. Richardson of Kutak Rock LLP and Edward O. Sassower, Steven N. Serajeddini and Anthony R. Grossi of Kirkland & Ellis LLP.
The case is In re: Intelsat SA, case number 20-32310, in the United States Bankruptcy Court for the Eastern District of Virginia.
--Editing by Katherine Rautenberg.
Update: This story has been updated with more information about Intelsat's filing.
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