(In April 10 item, corrects size of mandatory convertible bond
deal to $150 million from $700 million in 11th paragraph)
By Olivia Oran
April 10 Intelsat Global Holdings SA plans
to test investors' tolerance for financial leverage in a
proposed $500 million IPO next week, as the satellite operator
tries to take advantage of a stock market rebound that has
increased the appetite for new offerings.
Luxembourg-based Intelsat, which is owned by European
private equity firm BC Partners and Menlo Park, California-based
Silverlake Partners, carries a debt load of more than $15.9
billion, giving it a leverage multiple of around 7.8 times.
That compares to an average debt to EBITDA multiple of four
to five times for other recent sponsor-backed IPOs like
Norwegian Cruise Line Holdings Ltd and Bright Horizons
Family Solutions Inc
"It's a sign of the times in the marketplace that you're
seeing deals like this come," said Matt McCormick, a portfolio
manager at Cincinnati-based Bahl & Gaynor Inc. "People in
general are being more receptive to deals with risk, but they
need to understand that it's not all about reward, they need to
The company's debt level is slightly higher than it was
after its $16.6 billion buyout in 2008, which ranks as the
largest takeover of a PE-owned company by another private equity
firm, according to Thomson Reuters data. Intelsat carried $15.3
billion in debt after the deal closed.
The company's hefty debt load has resulted in high interest
expense which, in turn, caused a string of net losses.
Over the last three years, Intelsat has racked up combined
net losses of $1.1 billion, according to a company prospectus.
Last year, it devoted $1.3 billion, or about half its revenue,
to pay down its interest expense.
Intelsat's satellite network delivers information for
television and telephone companies, internet providers and
governments around the world. The company, which transmitted
television images of Neil Armstrong's landing on the moon in
1969, is the world's biggest operator of satellite services.
Still, Intelsat's growth prospects may be of concern to
investors. The company's revenue rose just 3 percent to $2.6
billion in 2012, and the portion of those revenues that come
from new business has fallen since 2009.
"The limit here is definitely being tested," said Dave
Stepherson, senior portfolio manager at Hardesty Capital
Management in Baltimore. "The cash flow is strong until the
economy goes south and the company has no flexibility to meet
its debt obligations. To me, the level of debt is bordering on
The company will use the IPO to pay down debt and is also
planning a $150 million mandatory convertible bond deal
concurrent with its IPO.
PUSHED TOO FAR?
Intelsat is trying to come to market at a time when a slew
of sponsor-backed companies taken private during the buyout boom
of 2006 to 2007 are also looking to list.
In March, packaged foods maker Pinnacle Foods, backed
by Blackstone Group LP, raised $580 million in its IPO.
Other private equity-backed companies that have gone public
this year include child care operator Bright Horizons Family
Solutions Inc, backed by Bain Capital; cruise line operator
Norwegian Cruise Line Holdings Ltd, backed by Apollo Global
Management LLC and TPG; and communications technology
company West Corp, backed by Thomas H. Lee Partners and
"You're seeing some of these more mature companies with less
apparent growth that couldn't have gone out a year ago begin to
come to market," said Jonathan Crane, a senior managing director
at Keybanc Capital Markets. "Now the market is so much stronger
that companies that perhaps don't have the growth profile but do
have other characteristics can get done today."
But that willingness to shoulder debt can be pushed too far.
Last month, private equity-backed communication services
company West Corp had a weak opening on the Nasdaq during its
public debut. West, which priced below its expected range, saw
shares open at $19 which was $1 below its IPO price. Since then,
shares have rallied slightly to close Tuesday at $20.75.
The market's reaction to West, which has a leverage ratio of
roughly five times, could raise questions about the future of
companies like Intelsat, which have even higher leverage.
Still, Intelsat and its backers are hoping the company's
high margins and predictability will make its heavy debt load
and moderate growth rate tolerable.
The company posted EBITDA margins of roughly 77 percent last
year and its backlog, or expected future revenue from existing
customers, stood at $10.7 billion. This enables Intelsat to have
visibility into nearly 80 percent of its revenue each year.
The company is selling 21.7 million shares at a range of $21
to $25 per share. It would be valued at $2.4 billion at the
midpoint of its range.
The IPO's lead underwriters include Goldman Sachs Group Inc
, JP Morgan Chase & Co, Morgan Stanley and
Bank of America Merrill Lynch.
Intelsat could not be reached for a comment.
(Reporting By Olivia Oran; Editing by Michael Erman, Grant
McCool and Chris Reese)