Intelsat S.A. – Court Approves $7.875bn DIP-to-Exit Financing Arrangements; Satellite Giant on Track to Emerge in Early 2022 Having “More than Halved” its $16bn of Prepetition Debt

January 5, 2022 – The Court hearing the Intelsat S.A. cases issued a final order authorizing the Debtors to enter into a series of replacement debtor-in-possession ("DIP") financing arrangements totalling $7.875bn; with this financing automatically converting into exit financing when the Debtors emerge from bankruptcy [Docket No. 3986]. As discussed further below, this order also allows (the lenders would use "requires"), the Debtors to repay in their entirety borrowings under an earlier $1.5bn DIP facility and amounts owed under the Debtors' prepetition first lien notes. 

On December 17, 2021, the Court hearing the Debtors' cases issued an order confirming the Debtors' modified Fourth Amended Plan and the latest guidance from the Debtors is an emergence date in "early 2022."

This final DIP order and the repayment of prepetition and DIP debt will tick a number of conditions precedent off of the Debtors' emergence list (see Article IX B of the Plan); with the Debtors now effectively waiting on final FCC approvals. In what is an indication that things are moving along as expected with the FCC, on January 5th the Debtors also announced that they had received a first $1.2bn in relocation payments in connection with "Phase I" of its C-band spectrum clearing project (8-K here). Meeting further C-band clearance targets in advance of a December 5, 2023 deadline will put the then emerged Debtors in line for a further $3.7bn payment.

This $7.875bn "DIP-to-Exit" financing is comprised of (i) a superpriority revolver in an aggregate principal amount of $500.0mn which will be fully syndicated by the Bank Arrangers, (ii) a $1.0bn superpriority term loan A facility of which $500.0mn will be syndicated by the Bank Arrangers and $500.0mn will be purchased by the Backstop Parties, (c) a $3.375bn first lien term loan B facility of which $2.875bn will be syndicated by the Bank Arrangers and $500.0mn will be purchased by the Backstop Parties, and (d) $3.0b in secured senior notes, which will be fully backstopped by the Backstop Parties. 

This is the third iteration of the Debtors' evolving DIP financing arrangements, having begun with a $1.0bn DIP facility in June 2020 which was refinanced in full in September 2021 when the Debtors' up-sized to a $1.5bn DIP facility. That September 2021 facility will now be repaid in full with the proceeds of this latest DIP package as will be the "relatively expensive prepetition credit facility, the prepetition 8.00% first lien notes, and the prepetition 9.50% first lien notes) (see the prepetition debt table below).

After a comprehensive marketing process (the Debtors and PJT Partners negotiated with seven direct lenders and eight banks across sixteen negotiation rounds); Barclays, Credit Suisse Loan Funding LLC, Deutsche Bank Securities Inc., Goldman Sachs Lending Partners LLC, and JPMorgan Securities LLC were selected as the Bank Arrangers, along with the Backstop Parties.

The current DIP Financing motion [Docket No. 3819] states, “A critical component of the Plan and the Debtors’ ultimate emergence is raising the New Debt contemplated by the Plan, which will fund the distributions under the Plan, transaction costs, and the Debtors’ post-emergence business. The Plan specifically contemplates that the New Debt may be raised before the effective date of the Plan in the form of a ‘DIP-to-Exit’ financing that would be funded as a debtor-in-possession financing during these cases and would automatically convert, upon satisfaction of certain conditions precedent, to an exit financing on the effective date…."

The Debtors argued that this enormous, all-singing, all-dancing DIP-to-Exit financing is the right tool for the job…right now…cleaning up prepetition (repaying) and DIP (refinancing) debt obligations and providing ample exit financing while the market is hot and thereby allowing the soon to be ex-Debtors to lock-in better terms and bring forward certainty as to access to capital and the hoped for robustness of its exit capital structure.

The motion continues: "The DIP Facilities are a key component of the Debtors’ overall restructuring efforts because they provide the Debtors with the flexibility and liquidity necessary to, among other things, (a) fund the distributions pursuant to the Plan, (b) repay the outstanding Prepetition Secured Debt (as defined below), (c) refinance their $1.5 billion Existing DIP Facility, (d) execute key operational tasks, including financing expenses related to their C-band clearing efforts, and (e) fund their business plan through and following emergence.

Additionally, the timing and DIP-to-exit structure of the DIP Facilities offer the Debtors and their estates several key benefits, including: (a) securing a commitment on post-emergence financing terms now under favorable market conditions, rather than bearing the risk of a change in the financial markets during an uncertain emergence timeframe driven in part by various regulatory processes; (b) leveraging favorable market conditions and strong appetite to refinance the Debtors’ Existing DIP Facility to repay the relatively expensive prepetition credit facility, the prepetition 8.00% first lien notes, and the prepetition 9.50% first lien notes (collectively, the ‘Prepetition Secured Debt’), capturing incremental interest savings through emergence; (c) providing transaction certainty and paving the way for the Debtors’ successful emergence from these chapter 11 cases; and (d) providing a shorter commitment period relative to a traditional exit financing that would be subject to risk around the emergence timing and expiration of the commitment period.

For these reasons, the Debtors believe that approval of the DIP-to-Exit Financing will maximize value for the Debtors’ stakeholders and is a sound exercise of the Debtors’ business judgment. The DIP Documents will contain terms that are materially consistent with the key terms described below and in the DIP Term Sheets.”

Marketing Efforts

In a declaration in support of the new financing arrangements [Docket No. 3820], the Debtors' investment banker (PJT Partners) provides: "A critical component of the Plan and the Debtors’ ultimate emergence is raising the New Debt, which will fund distributions under the Plan, transaction costs, and the Debtors’ post-emergence business. To that end, over the past several months, the Debtors’ management, with the assistance of their advisors, has worked to obtain cost-effective financing commitments that contain market-based economic terms and ensure operational and strategic flexibility through a process that allocates New Debt to both syndicating banks as well as the Backstop Parties.

The Debtors and their advisors ran a robust third-party financing process to raise New Debt with non-Backstop Parties. This marketing process was in addition to, and as a check on, the Backstop Commitment submitted by the Backstop Parties, as contemplated by the Plan. Specifically, beginning in September 2021, the Debtors and their advisors reached out to seven (7) direct lenders and eight (8) banks that would act as financing managers and delivered to each party a formal request-for-proposal for exit financing to each. Between late September 2021 and October 2021, the Debtors received separate, confidential, financing proposals from three (3) of the direct lenders and all eight (8) of the bank financing arrangers solicited. All proposals received included both economic terms as well as structural terms, and the Debtors with their assistance of their advisors evaluated a range of transaction structures and key terms, including interest rates, fees, maturity, and covenants from both the bond and loan markets. After reviewing the proposals, the Debtors determined that, structurally, a replacement DIP financing that, subject to certain conditions, would convert into an exit financing upon the Debtors’ emergence from chapter 11 would provide the optimal path forward to successfully implement the Plan and create a sustainable go-forward capital structure. The Debtors and the bank financing arrangers that expressed interest thereafter exchanged multiple proposals regarding the key economic and structural terms of the potential DIP-to-exit financing.

Concurrently with these efforts, the Debtors engaged with the Backstop Parties regarding the terms of the Backstop Commitment. In late October 2021, the Debtors received an initial Backstop Commitment proposal from the Backstop Parties. Thereafter, the Debtors and the Backstop Parties engaged in arm’s length and good-faith negotiations and exchanged multiple proposals concerning the terms of the DIP-to-exit financing, including the Backstop Parties’ potential allocation of the New Debt, with the intent to unify the terms of the bank financing arranger proposals and the Backstop Commitment proposal to achieve the most efficient capital structure and execution.

Ultimately, after a robust negotiation process that lasted several months, including sixteen negotiation rounds and the circulation of five side-by-side grids of terms to eight potential financing arrangers who all engaged in the process through the very end, five entities (Barclays, Credit Suisse Loan Funding LLC, Deutsche Bank Securities Inc., Goldman Sachs Lending Partners LLC, and JPMorgan Securities LLC) were selected as the Bank Arrangers, along with the Backstop Parties, to provide the DIP-to-exit financing. The Bank Arrangers were ultimately selected because of their ability to underwrite a financing package on favorable economic terms that will provide the Debtors with flexibility to pursue their business plan.

The Backstop Commitment, provided by parties to the Plan Support Agreement, was ultimately selected because the Debtors were able to negotiate economic terms that were favorable to the Debtors and competitive, when considering all key terms, with market proposals received from the Debtors’ third-party market financing process and because the Backstop Parties are willing to underwrite the Backstop Commitment and provide transaction certainty."

Key Terms of DIP Revolving Facility, Term Loan A Facility, Term Loan B Facility and DIP Notes:

DIP Revolving Facility

• Issuer: Intelsat Jackson Holdings S.A.
• Guarantor(s): The Credit Facilities will be fully and unconditionally guaranteed on a joint and several basis by (a) each of (i) the Equity Issuer (as defined in the Plan), (ii) Intelsat Holdings S.A., (iii) Intelsat Investments S.A., (iv) Intelsat (Luxembourg) S.A., (v) Intelsat Envision Holdings LLC, and (vi) Intelsat Connect Finance S.A. (“Immediate Parent”) (collectively, the “Parent Guarantors”), and (b) each entity that is a guarantor under the Prepetition Credit Agreement and/or the Existing DIP Credit Agreement and all other existing and future material wholly-owned subsidiaries of the Borrower (collectively, the entities listed in clauses (a) and (b), the “Guarantors” and, together with the Borrower, the “Loan Parties”), subject to customary exceptions (which shall not apply to the Parent Guarantors), including for (i) subsidiaries with less than 5% of the Borrower’s consolidated total assets and less than 5% of the Borrower’s consolidated gross revenues and (with such subsidiaries not exceeding in the aggregate 10% of the Borrower’s consolidated total assets or more than 10% of the Borrower’s consolidated gross revenues), (ii) certain regulatory license holders and governmental business subsidiaries or other subsidiaries prohibited from providing a guarantee due to regulatory restrictions (such exclusion shall continue only for so long as the applicable prohibition remains in effect), (iii) any subsidiary existing on the Closing Date organized outside of Luxembourg or the United States that is not a guarantor under the Existing DIP Facility Agreement or the Prepetition Credit Agreement, subject to specific exceptions to be agreed to the extent the Borrower determines that such exception would not result in material and adverse tax consequences, (iv) any subsidiary to the extent a guarantee by such subsidiary would result in material and adverse tax consequences as reasonably determined by the Borrower for so long as those tax consequences would result from such guarantee and (v) certain other subsidiaries to be agreed. Notwithstanding the foregoing, any subsidiary of the Borrower that (x) is entitled to any portion of the C-Band Proceeds and Clearing Cost Payments in excess of $5,000,000 or (y) holds a material regulatory license (other than to the extent prohibited from providing guarantees pursuant to clause (ii) above or to the extent the Borrower determines that providing such a guarantee would result in material and adverse tax consequences) shall be a Guarantor at all times; provided, that the aggregate amount of C-Band Proceeds and Clearing Cost Payments that may be held by subsidiaries that are not Guarantors in reliance on clause (x) shall not exceed $20,000,000. Notwithstanding the foregoing, the Parent Guarantors and any subsidiary of the Borrower that has not guaranteed the obligations under the Existing DIP Credit Agreement shall not be required to be a Guarantor until the Conversion Date (or such later date as agreed to by the Administrative Agent).
• Lenders: Not yet determined.
• Commitments: A “superpriority debtor-in-possession and superpriority senior secured exit” revolving credit facility denominated in U.S. dollars in an aggregate principal amount equal to $500.0mn.
• Term: Five years after the Closing Date.
• Interest Rates: The Borrower may elect that the DIP Revolving Facility comprising each borrowing bear interest at a rate per annum equal to: (i) the Alternate Base Rate plus the Applicable Rate; or the Adjusted LIBO Rate plus the Applicable Rate.
• Milestones: None
• Fees:
  • Commitment Fee: The Borrower shall pay to the Lenders (other than Defaulting Lenders) a commitment fee of 0.50% per annum, subject, after the first fiscal quarter following the Closing Date, to a grid with a 0.125% reduction in such percentages so long as the Borrower’s Total Leverage Ratio does not exceed 5.00:1.00 and a further 0.125% reduction in such percentages so long as the Borrower’s Total Leverage Ratio does not exceed 4.00:1.00 (such reductions to be implemented in a manner consistent with the Documentation Principles). All commitment fees shall be payable quarterly in arrears and upon the termination of the commitments.
  • Letter of Credit Fee: A per annum fee equal to the applicable spread over Adjusted LIBO Rate under the Revolving Credit Facility in effect from time to time will accrue on the aggregate face amount of outstanding letters of credit, payable in arrears on the third business day after the end of each quarter and upon termination of the Revolving Credit Facility. In addition, the Borrower shall pay to the relevant Issuing Bank, for its own account, a fronting fee of 0.125% per annum on the aggregate face amount of outstanding letters of credit, payable in arrears on the third business day after the end of each quarter (or another date agreed by the Borrower and the Administrative Agent) and upon termination of the Revolving Credit Facility.
• Use of DIP Facility Proceeds: The proceeds of the Credit Facilities will be used by the Borrower (a) to pay Transaction Costs, (b) to fund the refinancing of Prepetition Secured Debt and the Existing DIP Credit Facility, (c) to fund distributions under the Plan, and (d) to finance the working capital needs and other general corporate purposes of the Borrower and its subsidiaries (including for capital expenditures, acquisitions, working capital and/or purchase price adjustments, the payment of transaction fees and expenses (in each case, including in connection with the Reorganization), other investments, restricted payments and any other purpose not prohibited by the Facilities Documentation), provided that no loans under the DIP Revolving Facility may be borrowed on the Closing Date.

Term Loan A Facility

• Issuer: Intelsat Jackson Holdings S.A.
• Guarantor(s): Same as the DIP Revolving Facility
  
• Lenders: Not yet determined.
• Commitments: A “superpriority debtor-in-possession and superpriority senior secured exit” term loan “A” credit facility denominated in U.S. dollars in an aggregate principal amount equal to $1.0bn (which amount shall be automatically reduced by the amount of any net cash C-Band Proceeds and Clearing Cost Payments (excluding any excess C-Band proceeds to be paid in connection with the CVRs) received prior to the Closing Date (the amount of such reduction, the “Term Loan A Reduction Amount”)). Commitments to the Term Loan A Facility shall be reduced by the Term Loan A Reduction Amount on a pro rata basis across all holders of commitments for the Term Loan A Facility. 
• Term: The date that is 364 days after the Closing Date; provided that, if (x) Phase I C-Band Proceeds and Clearing Cost Payments (as defined below) have not been received in an amount sufficient to trigger the prepayment of the Term Loan A Facility by such date and (y) the outstanding principal amount of the Term Loan A Facility is greater than $100.0mn, upon written request of the Borrower, the maturity date may be extended by six months during the term of the Term Loan A Facility subject to the following conditions: (i) such extension request must be made no earlier than 45 days before the applicable maturity date and no later than 30 days before the applicable maturity date; (ii) no Event of Default shall exist on the date of the extension request and on the effective date of such extension; and (iii) payment by the Borrower of a fee equal to 0.25% of the principal amount of the Term A Loans being extended. 
• Interest Rates: The Borrower may elect that the DIP Term Loan A Facility comprising each borrowing bear interest at a rate per annum equal to: (i) the Alternate Base Rate plus the Applicable Rate; or (ii) the Adjusted LIBO Rate plus the Applicable Rate.
• Milestones: None
• Fees: 
  • Bank Arrangers Fees: Sealed pursuant to the Bank Arrangers Fee Letter Sealing Motion.
  • Backstop Parties Fees: Sealed pursuant to the Backstop Parties Fee Letter Sealing Motion.
• Use of DIP Facility Proceeds: Same as the DIP Revolving Facility 

Term Loan B Facility

• Issuer: Intelsat Jackson Holdings S.A.
• Guarantor(s): Same as the DIP Revolving Facility
  
• Lenders: Not yet determined.
• Commitments: A “superpriority debtor-in-possession and senior secured exit” term loan “B” facility denominated in U.S. dollars in an aggregate principal amount equal to $3.375bn (which, after the commitments in respect of the Term Loan A Facility have been reduced by $1.0bn as required by the terms hereof, shall be automatically reduced (x) by 100% of the first $250.0mn of net cash proceeds of C-Band Proceeds and Clearing Cost Payments and (y) thereafter, by 50% of net cash proceeds C-Band Proceeds and Clearing Cost Payments (excluding, in each case, any excess C-Band proceeds to be paid in connection with the CVRs) received prior to the Closing Date (the amount of such reduction, the “Term Loan B Reduction Amount”)). Commitments to the Term Loan B Facility shall be reduced by the Term Loan B Reduction Amount on a pro rata basis across all holders of commitments for the Term Loan B Facility. 
• Term: 7 years after the Closing Date 
• Interest Rates: The Borrower may elect that the DIP Term Loan B Facility comprising each borrowing bear interest at a rate per annum equal to: (i) the Alternate Base Rate plus the Applicable Rate; or (ii) the Adjusted LIBO Rate plus the Applicable Rate.
• Milestones: None
• Fees: 
  • Bank Arrangers Fees: Sealed pursuant to the Bank Arrangers Fee Letter Sealing Motion.
  • Backstop Parties Fees: Sealed pursuant to the Backstop Parties Fee Letter Sealing Motion.
• Use of DIP Facility Proceeds: Same as the DIP Revolving Facility 

New Secured Notes

• Issuer: Intelsat Jackson Holdings S.A.
• Guarantor(s): Same as the DIP Revolving Facility
  
• Lenders:Backstop Commitment Parties
• Commitments: $3.0bn in senior secured notes.
• Term: The New Secured Notes will mature on the 8th anniversary of the Conversion Date. 
• Interest Rate: 6.5%
• Milestones: None
• Fees: Sealed pursuant to the Backstop Parties Fee Letter Sealing Motion.
• Use of DIP Facility Proceeds: The proceeds of the New Secured Notes will be used by the Issuer (a) to pay Transaction Costs, (b) to fund the refinancing of Prepetition Secured Debt and the Existing DIP Credit Facility, (c) to fund distributions under the Plan, and (d) to finance the working capital needs and other general corporate purposes of the Issuer and its subsidiaries (including for capital expenditures, acquisitions, working capital and/or purchase price adjustments, the payment of transaction fees and expenses (in each case, including in connection with the Reorganization), other investments, restricted payments and any other purpose not prohibited by the Indenture). 

Prepetition Indebtedness

As of the Petition date, the Debtors had approximately $14.8bn of third-party funded debt obligations, with an annual interest expense of approximately $1.13bn. The following simplified organizational chart and table depicts the Debtors’ prepetition capital structure as of the Petition Date:

Plan Confirmation

On December 17th, the Court issued its confirmation order [Docket No. 3894]. That order confirms a modified Fourth Amended Plan filed by the Debtors earlier on the 17th [Docket No. 3891 which attaches a blackline showing changes to the Plan as filed on December 4th].

According to a press release announcing the confirmation, "Intelsat is poised to emerge from the process in early 2022 upon receipt of regulatory approvals, completion of certain corporate actions and satisfaction of other customary conditions.

The confirmed Plan will reduce Intelsat’s debt by more than half – from approximately $16 billion to $7 billion – and position the Company for long-term success as it innovates and brings new services to market. The Plan was supported by all creditor groups across Intelsat’s capital structure following extensive negotiations and the ultimate consensual resolution of a multitude of complex issues."

The Debtors' chief executive officer, Stephen Spengler, commented further, “Today’s Plan confirmation is a key milestone in Intelsat’s transformation. We have achieved all of the goals we identified at the outset of the process, including a substantial reduction of our legacy debt burden. Throughout the process, we have driven our business forward at full speed – launching new satellites, advancing the accelerated clearing of C-band spectrum, acquiring Gogo’s commercial aviation business, progressing our next generation network and service strategy and serving customers every day with the excellence for which we are known….

With a strengthened balance sheet, strong operating model and unparalleled global orbital and spectrum rights, scale and partnerships, we will be better positioned to advance our strategic objectives, accelerate our growth trajectory and fuel the success of our customers and other key stakeholders. Our goals include building the world’s first global 5G satellite-based, software-defined, unified network.”

The press release continues, "Under the terms of the Plan and with exit financing commitments already obtained, Intelsat is set to emerge as a private company, with the support of new equity owners, access to $7.875 billion in capital and a significantly deleveraged balance sheet. The Company is well positioned to continue to reduce its debt upon receipt of $4.87 billion of accelerated relocation payments in connection with the C-band spectrum clearing project, with $1.2 billion of the total already approved by the Federal Communications Commission for anticipated receipt in January."

About the Debtors

Intelsat S.A. is a publicly held operator of one of the world’s largest satellite services businesses, which provides a diverse array of communications services to a wide variety of clients, including media companies, telecommunication operators, internet service providers, and data networking service Providers.

The Debtors add: "Through its global and extra-terrestrial network of satellites and teleports, the Company 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 in the air and on the seas, multinational corporations and internet service providers in the most challenging and remote locations across the globe. The Company is also the leading provider of commercial satellite communication services to the U.S. government and other select military organizations and their contractors. The Company’s administrative headquarters are in McLean, Virginia, and the Company has extensive operations spanning across the United States, Europe, South America, Africa, the Middle East, and Asia."

On May 14, 2020, Intelsat S.A. and 34 affiliated Debtors (NYSE: I; “Intelsat” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Eastern District of Virginia, lead case number 20-32299. At filing, the Debtors, one of the world’s largest satellite services businesses, noted estimated assets of $11.7bn and estimated liabilities of $16.8bn.

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