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NEW YORK, Sept 2 (IFR) - Intelsat launched its third liability management exercise of the year this week, trying to woo investors with another bond exchange in an ongoing effort to tackle its US$15bn debt pile.
While the exchange is expected to be a success - Intelsat said holders of more than half the bonds concerned have already accepted - the trade is unlikely to provide much help.
S&P meanwhile said it considered the offer a selective default, and dropped its rating on the Luxembourg-based satellite company two notches to CC.
"They have not done a lot to meaningfully improve the capital structure at this stage," CreditSights analyst Lindsay Pacia told IFR.
"The reduction in debt they have achieved to this point will likely be offset by a decline in Ebitda."
Intelsat has been groaning with debt since its US$16.6bn leveraged buyout in 2008 by private equity firms BC Partners and Silverlake.
The latest offer will be the company's third liability management exercise since hiring Guggenheim in February to advise on managing its balance sheet.
But while it is offering a generous premium, the new offer only covers US$142m of its outstanding 6.625% senior 2022s - a drop in the ocean when faced with US$15bn in debt.
And while Intelsat does not face significant debt maturities until 2018, its highly leveraged balance sheet is at odds with declining revenues and increased competition in the industry.
"Intelsat is a zombie company," said John McClain, a portfolio manager at Diamond Hill Capital Management.
"It is a large issuer with reasonable liquidity in the short term. But the capital structure in its current form is unsustainable."
Holders of the 2022s who accept the exchange will get 12 cents to the dollar in cash and 70.5 cents of new 8% secured 2024s.
Those who also agree to eliminate virtually all the covenants - and waive any claims on a default - will pocket an additional 6.5 cents on the dollar.
Analysts said that amounted to roughly a 16 cent premium to the outstanding 2022s, which jumped as high as 87.5 last week after the exchange offer was announced.
They had been trading around 72-74 before the announcement.
Whatever happens with the exchange, analysts and investors alike seem to agree that the company's struggles will be very difficult to overcome - and that restructuring is on the cards.
Revenue has declined steadily since the company's initial public offering in 2013, while interest payments have been consuming more than one-third of the company's top line.
"It is not a mathematical possibility for them to grow back into this cap structure," one portfolio manager told IFR. "It is lawyer work, not investor work."
Intelsat downgraded its earnings guidance for the year in February, and then saw some of its unsecured bonds drop more than 20 points in two days.
After that, it issued US$1.25bn of secured 2024s in March and US$490m of secured 2022s in June - not the 2022s involved in the current exchange offer - to help buy back debt.
Some in the market believe asset sales or even more debt exchanges at the holdco level could provide breathing space before any restructuring.
Analysts at Jefferies believe the company will return to growth next year, and the company itself says that four satellites launched this year will boost the bottom line.
"With the entry into service of these four satellites, we will be in a position to return to revenue growth," said Dianne VanBeber, company vice president for investor relations.
But other voices of optimism are few and far between.
"It is restructuring assured," said the portfolio manager. "The question is how the restructuring will be managed." (Reporting by Davide Scigliuzzo; Editing by Natalie Harrison, Shankar Ramakrishnan and Marc Carnegie)