Intelsat - an Interstellar Chapter 11

Welcome to the 78th Pari Passu Newsletter,

Last week, we learned about a fast-growing company that seems to be getting everything right. Today, we are back in the magic world of restructuring.

In 2017, Intelsat, a major satellite operator, attempted to reduce its debt load through a merger with OneWeb, a company specializing in providing internet services globally via satellites, supported by a $1.7bn investment from SoftBank. However, the deal fell through, leaving Intelsat to grapple with approximately $16bn of debt.

Four years later, in 2021, Intelsat filed for Chapter 11 bankruptcy, aiming to reduce its debt by half and to raise additional capital to capitalize on the growing 5G deployment in the United States.

Despite Intelsat’s strategic moves, including the sale of some of its assets and a rigorous restructuring plan, the company found itself navigating through complex financial waters, with its equity holders facing significant dilution or even being wiped out, while the ownership dynamics shifted towards the creditors.

This scenario prompts the simple question: what went wrong? To comprehend the downfall of Intelsat, it’s pivotal to delve into its operational context within the global satellite communication industry.

Chapter 1: Background

Intelsat operates as a satellite services business, providing diversified satellite communications services to a wide range of clients including media companies, fixed and wireless telecommunications operators, data networking service providers for enterprise and mobile applications in the air and on the seas, multinational corporations, and Internet Service Providers (ISPs). In order to further understand what Intelsat does, here are some relevant definitions and concepts:

• Geostationary Orbit (GEO): A type of orbit that allows satellites to stay fixed over one spot on the Earth's surface, commonly used for communication and weather observation

• Low Earth Orbit (LEO): An orbit closer to Earth that is typically utilized by satellites designed for tasks like Earth observation and spy missions

• C-band Spectrum: A segment of the electromagnetic spectrum used for communication, which has become pivotal in the rollout of 5G technology

• 5G Technology: The fifth generation of mobile network technology, succeeding 4G, designed to increase speed, reduce latency, and improve the flexibility of wireless services

Intelsat, with its fleet of satellites, primarily in Geostationary Orbit (GEO), has been a pivotal player in enabling global broadcasting, providing critical communication infrastructure for media and network services. The company also ventured into the Low Earth Orbit (LEO) domain through its investment and partnership with OneWeb, aiming to expand its broadband capabilities.

In the context of its business model, Intelsat’s revenue streams were derived from long-term contracts for satellite capacity, often spanning several years, providing a seemingly stable and predictable cash flow. However, the company was also encumbered by its substantial debt, which was initially incurred to fund the expansion and maintenance of its satellite fleet and to navigate through the competitive pressures and technological shifts in the industry.

In the subsequent chapters, we will explore Intelsat’s business model, the failed merger with OneWeb, its involvement in the C-band spectrum auction, and how these factors, among others, coalesced into its bankruptcy filing [1].

Business Model

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