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Rating Action:

MOODY'S DOWNGRADES PANAMSAT CORP'S RATINGS (SR. IMPLIED TO Ba3 FROM Ba2); ASSIGNS Ba3 AND B1 RATINGS TO ITS PROPOSED $2.9 BILLION BANK FACILITY AND $1.0 BILLION SR. UNSECURED NOTES, RESPECTIVELY. OUTLOOK IS STABLE.

15 Jul 2004
MOODY'S DOWNGRADES PANAMSAT CORP'S RATINGS (SR. IMPLIED TO Ba3 FROM Ba2); ASSIGNS Ba3 AND B1 RATINGS TO ITS PROPOSED $2.9 BILLION BANK FACILITY AND $1.0 BILLION SR. UNSECURED NOTES, RESPECTIVELY. OUTLOOK IS STABLE.

Approximately $4.2 billion of long-term debt affected

New York, July 15, 2004 -- Moody's Investors Service has downgraded PanAmSat Corporation's (SPOT) ratings concluding a review initiated on April 20, 2004. The review was initiated following the announcement of a definitive agreement between a private equity group led by Kohlberg Kravis Roberts & Co. (the Sponsorship Group) and PanAmSat's parent company, The DIRECTV Group, Inc (Ba3 Sr. implied on review for upgrade) for the purchase of DIRECTV's 80.5% stake and the remaining stake held by the public for a total of approximately $4.2 billion including the assumption of debt and excluding transaction costs.

Moody's also assigned a Ba3 rating to SPOT's newly proposed $2.91 billion senior secured bank debt facility (including $250 million of an undrawn revolver), and a B1 rating for its proposed new $1.01 billion of senior unsecured notes which are expected to be part of the new capital structure at the close of the transaction together with existing senior secured notes totaling $275 million ($150 million due 2008 and $125 million due 2028). The existing debt ratings downgraded include:

Senior implied to Ba3 from Ba2

$275 million secured notes due 2005 to Ba3 from Ba2

$150 million senior secured notes due 2008 to Ba3 from Ba2

$125 million senior secured notes due 2028 to Ba3 from Ba2

$800 million senior unsecured notes due 2012 to B1 from Ba3

Issuer rating to B1 from Ba3

Moody's anticipates that the $275 million of senior secured notes due 2005 and $800 million of senior unsecured notes due 2012 will be redeemed for cash by the company at the close of the acquisition and that those ratings will be withdrawn. Moody's has also withdrawn the rating on the approximately $350 million senior secured term loan that the company repaid on June 9 of this year. The total amount of debt outstanding at closing will be about $3.94 billion and the amount available will be $250 million. The outlook for the ratings is stable.

The downgrade reflects the significantly increased debt leverage being incurred to finance the leveraged buy-out of SPOT. Moody's had already factored into the company's ratings constraint derived from concerns for a potential debt-financed transaction of this nature for some time given the past uncertainty surrounding the ownership of The DIRECTV Group, and whether SPOT would be integral to the future strategy of The DIRECTV Group.

The ratings reflect PanAmSat's ability to generate good cash flow, its very strong industry position with a significant global footprint, its strong and diversified customer base, the company's significant operating margins, and a committed contract backlog of almost $5.4 billion, including approximately $670 million of which will be finalized at the closing of the transaction. The ratings further take into account credit enhancements and other credit support that were put in place earlier this year, including some significant extensions of service contracts for a number of key customers, guarantees of select contracts by DirecTV Group. Furthermore, the ratings reflect the company's strong liquidity position evidenced by the additional availability of $250 million at the closing of the deal. Additionally, the expected debt indenture covenants are an important component of these ratings. The financial covenants allow for a moderate amount of operational flexibility but do not allow any material increase in debt leverage or additional debt. Proposed covenants include a maintenance test of 6.75 times total debt-to-adjusted EBITDA, which adds back sales-type lease principal payments. The company is expected to have a total debt-to-adjusted EBITDA of about 6.4 times at year end 2004.

The rating also considers SPOT's high financial leverage upon the close of the transaction, considering that the acquisition of the company was financed primarily with debt. After the transaction is completed, Moody's expects the company's year-end 2004 lease adjusted-debt-to-EBITDAR leverage to be about 6.8 times and about 3.0 times interest coverage. Moody's assigned ratings for the company's anticipated new debt (and the newly downgraded ratings on the $275 million of existing debt) are prospective and anticipate that by year-end 2006, the company will reduce its leverage to under 5.5 times, and therefore are indicative of the company's present narrow financial flexibility to sustain unanticipated operational weakness or incremental indebtedness.

In addition, the ratings reflect the uneven capital requirements to remain competitive in this industry, and the inherent risks of managing a satellite fleet, including high insurance costs, backup capacity, technological in-orbit failures, etc.

The Sponsorship Group plans to purchase SPOT in a series of transactions that will result in the Sponsorship Group and management owning 100% of SPOT. SPOT and The DIRECTV Group will acquire the publicly traded shares of PanAmSat for $23.50 per share. Afterwards, the Sponsorship Group and SPOT will buy DIRECTV's 80.5% ownership at $23.50 per share. The acquisition requires a number of approvals, including those from the FCC, FTC and SPOT shareholders. Moody's does not anticipate any difficulties in gaining these approvals and the acquisition is expected to close in August.

In addition to Kohlberg Kravis Roberts & Co. (KKR), the Sponsor Group includes the Carlyle Group, Providence Equity Partners and management. KKR will own 44%, Carlyle and Providence Equity will each own 27% and management will own 2% of the company.

PanAmSat Corporation, headquartered in Wilton, Connecticut, is one of the world's top three satellite operators. With an owned and operated fleet of 24 satellites, PanAmSat is a leading global provider of video, broadcasting and network distribution and delivery services. PanAmSat reported around $837 million of revenues for the last twelve months ended March 31, 2004.

New York
Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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