IPO Preview: Intelsat

| About: Intelsat SA (I)

Based in Luxembourg, LU, Intelsat S.A. (NYSE:I) scheduled a scheduled a $500 IPO with a market capitalization of $2.4 billion at a price range mid-point of $23 for Thursday, April 11, 2013.

Seven IPOs were scheduled for the week of April 15th. The full IPO Calender is here.

S-1 filed April 2, 2013

Manager, Joint Managers: Goldman, Sachs/ J.P. Morgan/ Morgan Stanley/ BofA Merrill Lynch
Co Managers: Barclays/ Credit Suisse/ Deutsche Bank Securities/ Nomura/ UBS Investment Bank/ Evercore Partners/ HSBC/ RBC Capital Markets/ LionTree/ Raymond James


Intelsat is the world's largest provider of satellite business services. It is one of the most leveraged (both balance sheet and income statement) businesses we have seen.

Top line revenue has increased about only 1% per year the past several years. Interest consumes about 50% of revenue. Intelsat has a negative tangible book value of $8.4 billion.

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Pass on the Intelsat IPO. The balance sheet is too weak and there is technological competition, see COMPETITION below.

  • Intelsat is showing anemic percentage revenue growth.

  • Intelsat has a large $2.5+ billion annual revenue base.

  • Intelsat pays more in interest than it generates in operating earnings.

  • Intelsat's losses as a percentage of revenue are decreasing.


Intelsat operates the world's largest satellite services business, providing a critical layer in the global communications infrastructure.

Intelsat believes it generates more revenue, operates more satellite capacity, holds more orbital location rights, contracts more backlog, serves more commercial customers and delivers services in more countries than any other commercial satellite operator, based upon public filings and industry reports.

Intelsat provides diversified communications services to the world's leading media companies, fixed and wireless telecommunications operators, data networking service providers for enterprise and mobile applications, multinational corporations, and ISPs.

Intelsat is also the leading provider of commercial satellite capacity to the U.S. government and other select military organizations and their contractors.

The post-IPO balance sheet shows a negative net worth of $1.05 billion. However, that balance sheet also shows goodwill of $6.7 billion and amortizable assets of $700 billion, for a total of $7.4 in 'water' on the balance sheet.

Adjusting for the 'water' on the balance sheet Intelsat shows a negative tangible net worth of $8.4 billion, not including 'unamortizable assets' of $2.5 billion.

In balance sheet terms, Intelsat is the most highly leveraged - actually operating - company IPOdesktop has ever seen. The leverage also shows up on the income statement where about 50% of revenue goes to pay interest.

The Fixed Service Satellite (FSS) sector, as a whole, has experienced growth over the past few years, but Intelsat has grown revenue only 1% per year for the past several years.

As of December 31, 2012, Intelsat's contracted backlog, which is expected future revenue under existing customer contracts, was $10.7 billion, more than four times our 2012 annual revenue.

Intelsat believes it is well-positioned to experience growth in free cash flow in the near future based on the following factors:

  • Significant long-term contracted backlog, enabling Intelsat to generate steady and predictable revenue streams;

  • High operating leverage, which has allowed Intelsat to generate an average Adjusted EBITDA margin of 78% in the past three years;

  • Intelsat's $3.7 billion fleet investment program began in 2008 was substantially complete by the end of 2012; and

  • A stable, efficient and sustainable tax profile for Intelsat's global business.

Intelsat S.A., the indirect wholly-owned subsidiary, has been a public reporting company since 2002. Intelsat Corporation (formerly known as PanAmSat Corporation), the indirect wholly-owned subsidiary, was a public reporting company until January 2011.

Intelsat is in the Fixed Service Satellite segment. Competitors include SES, Eutelsat and Telesat Canada

Direct competitors are likely to continue developing and launching satellites with greater power and more transponders, which may create satellite capacity at lower costs.

Intelsat also believes that there are many companies that are seeking ways to improve the ability of existing land-based infrastructure, such as fiber optic cable, to transmit signals.

Any significant improvement or increase in the amount of land-based capacity, particularly with respect to the existing fiber optic cable infrastructure and point-to-point applications, may cause Intelsat's video services customers to shift their transmissions to land-based capacity.

If fiber optic cable networks or other ground-based high-capacity transmission systems are available to service a particular point, that capacity, when available, is generally less expensive than satellite capacity. As land-based telecommunications services expand, demand for some satellite-based services may be reduced.

A portion of Intelsat's revenue has historically been derived from channel services. Because fiber optic cable capacity is generally available at lower prices than satellite capacity, competition from fiber optic cable has historically caused a migration of Intelsat's point-to-point customers from satellite to fiber optic cable on certain routes, resulting in erosion in revenue from point-to-point services over the last ten years.

The FSS sector, as a whole, has experienced growth over the past few years. Competing technologies, such as fiber optic cable, are continuing to adversely affect the point-to-point segment of the FSS sector. In the point-to-multipoint segment, the global economic downturn, the transition of video traffic from analog to digital and continuing improvements in compression technology have negatively impacted demand for certain fixed satellite services.

Serafina S.A., 75%
SLP III Investment Holding S.àr.l., 16.5%

Intelsat expects to net $474 mlllion from its IPO.

In addition, Intelsat expects its concurrent public offering of 3 million Series A preferred shares to net $143 million. The Series A preferred shares are convertible into common at an unspecified exchange rate.

All proceeds - $611 million - are allocated to repay debt, except $39.1 million will be paid to the Sponsors as a fee in connection with the termination of the monitoring fee agreement.

Based on the IPO proceeds and a recent refinancing, Intelsat will reduce its interest burden by $58 million, compared to interest charges in 2012 of $1.27 billion.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This Intelsat IPO report is based on a reading and analysis of Intelsat's S-1 filing which can be found here and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

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