SoftBank's Satellite Merger Disintegrates as Debt Deal Rejected

(Bloomberg) -- Intelsat SA’s merger with SoftBank Group Corp.’s OneWeb Ltd. collapsed after bondholders rejected a debt swap that would have imposed steep losses on some creditors.

Intelsat notified OneWeb and SoftBank that its bondholders turned down its latest offer and that it expects the deal to be terminated on June 2, according to a statement on Thursday. Bonds issued by Intelsat, which was seeking to ease a debt burden of about $15 billion, plunged after the announcement.

"We are disappointed that our bondholders were unwilling to accept the terms of the exchange offers presented over the course of this process," said Intelsat Chief Executive Officer Stephen Spengler.

Intelsat’s bondholders have been haggling over the price they would receive in the deal and the parties couldn’t reconcile their differences, according to a person familiar with the matter, asking not to be identified because discussions were private. SoftBank has already begun talks with alternative satellite partners, including Inmarsat Plc, said the person. Other prospects include Telesat Holdings Inc. and SES SA, the person said.

“While we are disappointed Intelsat was not able to achieve an acceptable agreement with its bondholders, we continue to be enthusiastic about OneWeb’s standalone prospects, and its potential to disrupt the satellite industry and communications business generally,” SoftBank International’s Chief Financial Officer Alok Sama said in an emailed statement. “SoftBank will continue to work with the OneWeb management team to seek alternative paths to accelerate its strategy.”

Shares Climb

Inmarsat shares rose as much as 7.5 percent in London trading, while SES shares climbed as much as 5.1 percent. “Inmarsat does not comment on speculation,” said a company spokesman.

Intelsat announced plans in February for a merger with OneWeb, and the deal was predicated on completing the debt swap. The exchange was designed to ease Intelsat’s struggle with more than $15 billion of borrowings that piled up as the company endured two leveraged buyouts.

The agreement called for at least 85 percent of the notes to be pledged before the plan could proceed, and either side was permitted to walk away without penalty if the threshold wasn’t met by June 2. Prices on some of the bonds soared well above what the company offered to investors, who demanded better terms and lined up a big enough group of dissidents to block the exchange.

Less than 1 percent of each series of notes had been tendered as of May 17, spurring Intelsat to improve the offer and extend the deadline a fourth time. SoftBank boosted its investment in the merger by $61.6 million to $1.79 billion, and said it was unwilling to pay any more.

Despite the collapse of the deal, Intelsat said it would continue to work with SoftBank and OneWeb on pre-existing commercial deals. Intelsat’s 7.75 percent notes due 2021 fell more than 3 cents to trade at 50.8 cents on the dollar Thursday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net, Emma Orr in New York at eorr6@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Giles Turner, Rick Green