Bankrupt Intelsat Files Restructuring Plan to Halve Debt

Intelsat SA, the bankrupt satellite company, reached an agreement with some of its creditors on a plan that would hand ownership to unsecured bondholders and halve its debt load.

The McLean, Virginia-based company filed a plan to cut its debt to $7 billion. The proposal has the support of creditors holding about $3.8 billion of its obligations, according to a statement, suggesting holders of about 25% of debt have agreed to the plan. The Intelsat Jackson unit’s unsecured bondholders would take control of the new company by converting their holdings to new shares, according to court papers.

Intelsat filed for bankruptcy in May to trim its debt load as it prepared to hand over some of its so-called “C-Band” spectrum to the Federal Communications Commission to be used for 5G wireless service. The company stands to reap nearly $5 billion in payments from the FCC for preparing the spectrum in time for auction.

Under the proposed plan, Intelsat Jackson unsecured debt holders will receive 95% of the company’s new shares, which translates to a recovery of about 8.5%, according to the company’s disclosure statement. ICF holders would get 3.043% of new shares and LuxCo holders would received 1.957%. Unsecured creditors will also be entitled to warrants to purchase additional equity.

Litigation Risk

Existing shareholders will be diluted and could see their stake become worthless, and the company’s term loan lenders and first-lien note holders are entitled to cash payments for a nearly 100% recovery, according to documents. The company will receive a new $750 million secured credit facility.

Intelsat said there was potential for litigation stemming from its convertible note holder’s attempt to lay claim to nearly $5 billion in potential payments from the C-Band spectrum hand over. Those creditors would convert their holdings to a share of the equity, for a recovery of 8.6%.

The potential FCC incentive payments are the property of the Intelsat SA estate, where their debt is located, and not the Intelsat Jackson entity, the convertible note holders said in a motion filed prior to the bankruptcy plan. In an Oct. 1 letter to the company, Cyrus Capital Partners said the relocation payments should flow to Intelsat SA because that entity carries the risk of ensuring the company meets the deadlines for the C-Band spectrum transfer.

The board of the company should ensure that any plan of reorganization allocates the full value of the relocation payments to the Intelsat SA estate, Cyrus said in its letter. The ad hoc note holder group intends to object to the bankruptcy plan, a person with knowledge of the matter said, who asked not to be identified discussing confidential discussions.

Representatives for Cyrus, Boies Schiller Flexner and Stroock & Stroock & Lavan, counsel for the ad hoc convertible note holder group, didn’t immediately comment.

Holders of 73% of the Connect senior notes, 37.3% of the LuxCo senior notes, 36.1% of the first-lien notes, approximately 34.9% of the term loan, 32.1% of the convertible notes, and 7.6% of the Jackson notes signed onto the support agreement, according to a court filing.

The case is Intelsat S.A., 20-32299, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond). To view the docket on Bloomberg Law, click here.

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