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Why satellite communications company Intelsat filed for bankruptcy

May 14, 2020, 4:15 PM UTC

Intelsat, one of the leading satellite communications companies in the world, filed for bankruptcy on Wednesday. But ultimately the Chapter 11 filing should help the company collect billions of dollars for selling airwave licenses it owns that can be used for 5G wireless service.

In a move that had been telegraphed for weeks, Intelsat said in its filing that it couldn’t afford to service its heavy debt load while also paying hundreds of millions of dollars to transition its network to new technology to allow for a federal auction of some of its airwave licenses. The Federal Communications Commission in February adopted a plan to sell off some of the airwaves held by Intelsat and its peers to wireless carriers that need the spectrum for 5G, but the satellite companies first need to make costly alterations to their operations.

Shares of Intelsat, which traded over $25 as recently as November, dropped to 79 cents on Wednesday before regular trading was suspended on the New York Stock Exchange due to the bankruptcy filing.

Intelsat carries almost $15 billion of debt, a legacy of multiple private equity owners over the past decade who loaded up the company’s balance sheet to make acquisitions and pay dividends. A month ago, it missed a bond payment and hired bankruptcy lawyers and advisers in preparation for making a Chapter 11 filing.

Most U.S. broadcast and cable TV providers rely on Intelsat to distribute their programming across the country via its satellite network. Intelsat also provides communications service to planes, boats, and other remote travelers, a business that has taken a hit during the coronavirus pandemic. Intelsat obtained a $1 billion debtor-in-possession loan to continue its operations and fund the FCC-required transition while its Chapter 11 case moves forward.

In an unusual statement for a bankrupt company, Intelsat CEO Stephen Spengler tried to position the Chapter 11 filing as a victory. “This is a transformational moment in the history of our company,” Spengler said in a statement on Thursday. “This will position us to invest and pursue our strategic growth objectives, build on our strengths, and serve the mission-critical needs of our customers with additional resources and wind in our sails.”

That’s likely because Intelsat stands to collect almost $5 billion from the FCC’s auction of airwaves known as the C-Band. The auction is scheduled to begin in December but could be delayed by the pandemic.

The list of equity investors in Intelsat filed with the bankruptcy court in Virginia included famed hedge fund manager David Tepper’s firm Appaloosa holding a 7% stake. Tepper’s firm has also bought Intelsat bonds and could turn a profit in the end, depending on how the satellite company weathers the FCC auction and bankruptcy process.

Intelsat is one of several companies in the satellite sector to declare bankruptcy during the economic crash caused by the coronavirus. In March, OneWeb, the Internet-from-space service backed by SoftBank, filed for bankruptcy, saying it could not find financing due to the pandemic. The company’s assets, including 74 satellites already in orbit, are now up for sale with rumored interest from Amazon, among others. And Australian satellite service company Speedcast International filed for bankruptcy last month.