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Rating Action:

Moody's assigns B1 rating to Intelsat's senior secured notes; Affirms Caa2 CFR

13 Jul 2016

$490 million of new notes rated

Toronto, July 13, 2016 -- Moody's Investors Service (Moody's) assigned a B1 rating to Intelsat Jackson Holdings S.A.' s (Jackson) $490 million senior secured notes and, as part of the same rating action, affirmed Intelsat S.A.'s (Intelsat) Caa2 corporate family rating (CFR), Caa3-PD/LD probability of default rating (PDR). With Jackson's 6.625% notes due 2022 having recently been guaranteed, Moody's upgraded their rating to Caa2 from Caa3. All other debt instrument ratings in the corporate family were affirmed (see ratings listing below). Intelsat's speculative grade liquidity rating was also affirmed, at SGL-3 (adequate liquidity), and its rating outlook was maintained at negative.

Intelsat is the senior-most entity in the Intelsat group of companies and is the entity at which Moody's maintains the CFR, PDR and SGL ratings, and is the only company in the family issuing financial statements. Intelsat guarantees debts at its subsidiary, Intelsat (Luxembourg) S.A. and, as well, at Intelsat (Luxembourg)'s subsidiary, Jackson.

The rating action was prompted by Intelsat arranging funding, by way of Jackson's new senior secured notes, for a tender offer by which existing notes are repurchased at a discount to par. The transaction is the most recent of several steps by which Intelsat is partially recapitalizing and, in the aggregate, Moody's views the current sequence of transactions, which it believes will be completed within about 60-90 days, as comprising a distressed exchange.

As outlined in Moody's 17 May 2016 press release, with the tender offer component of the transaction sequence completed, the agency has appended the /LD limited default indicator to Intelsat's PDR; this will remain for one business day and is expected to be a one-time event, at least over the near term.

However, while Moody's would normally reassess all ratings upon the limited default indicator being withdrawn, it will defer conducting a comprehensive ratings reassessment until the current sequence of transactions is completed. In the interim, all existing long term ratings were affirmed (with the exception of the Jackson 2022 notes).

The following summarizes Moody's ratings and today's rating actions for Intelsat:

Assignments in the name of Intelsat Jackson Holdings S.A.:

....Senior Secured Guaranteed Bond/Debenture, Assigned B1 (LGD1)

Upgrades in the name of Intelsat Jackson Holdings S.A.:

....Senior Unsecured Bond/Debenture (Jackson 2022 notes), Upgraded to Caa2 (LGD3) from Caa3 (LGD4)

Other rating and outlook actions in the name of Intelsat S.A.:

....Corporate Family Rating, Affirmed at Caa2

....Probability of Default Rating, Affirmed at Caa3-PD/LD

....Speculative Grade Liquidity Rating, Affirmed at SGL-3 (adequate)

....Outlook, Maintained at Negative

Affirmations in the name of Intelsat Jackson Holdings S.A.:

....Senior Secured Bond, Affirmed at B1 (LGD1)

....Senior Secured Bank Credit Facility, Affirmed at B1 (LGD1)

....Senior Unsecured Bond/Debenture, Affirmed at Caa2 (LGD3)

Affirmations in the name of Intelsat (Luxembourg) S.A.

....Senior Unsecured Regular Bond/Debenture, Affirmed at Ca (LGD5)

RATINGS RATIONALE

Intelsat's Caa2 CFR reflects Moody's opinion that the company's capital structure may not be sustainable, a matter stemming primarily from ongoing revenue and EBITDA declines which, given the company's aggressive debt load, are expected to cause leverage of Debt/EBITDA to stay above 9.5x by the end of 2016. In part, cash flow declines reflect the company's disproportionate exposure to highly commoditized telecommunications services, some of which are vulnerable to terrestrial competition. While other fixed satellite services companies report heightened competition given the combination of recent supply additions and challenging macroeconomic conditions, Intelsat's significantly declining results are the exception and, in Moody's view, signal a potential lack of cash flow self-sustainability. Over the rating horizon, 2018 refinance activities are also a negative consideration.

Intelsat's speculative grade liquidity rating continues to be SGL-3, indicating adequate liquidity. The company has an undrawn $450 million revolving credit facility which matures within one year and, while it is expected to remain unused, Moody's does not include it in its liquidity assessment. Moody's views Intelsat's cash position as a substitute for the revolver, and presumes that a minimum of $450 million of cash remains after this round of liability management transactions and, after interest cost savings from the ongoing activities, expects the company to be cash flow negative by about $75 million. With cash to address near term maturities, adequate covenant compliance, and satellites or transponders can be sold off, liquidity has been assessed as adequate.

Rating Outlook

The negative outlook reflects refinance risk and execution risk as Intelsat attempts to derive additional profitability from its next generation satellites.

What Could Change the Rating - Up

• Cash flow self-sustainability over the life cycle of the company's satellite fleet

• Together with

--- Positive industry fundamentals

--- Maintenance of solid liquidity

--- Clarity on capital structure planning

What Could Change the Rating - Down

• Free cash flow deficits, or

• Less than adequate liquidity arrangements.

The principal methodology used in these ratings was Global Communications Infrastructure Rating Methodology published in June 2011. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Luxembourg, and with executive offices in McLean, VA, Intelsat S.A. (Intelsat) is one of the two largest fixed satellite services operators in the world. Annual revenues are expected to be approximately $2.2 billion with EBITDA of approximately $1.65 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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Bill Wolfe
Senior Vice President
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's assigns B1 rating to Intelsat's senior secured notes; Affirms Caa2 CFR
No Related Data.
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