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Rating Action:

Moody's downgrades Intelsat's CFR to Caa2; outlook now negative

29 Feb 2016

Approximately $15.2 billion of rated debt instruments affected

Toronto, February 29, 2016 -- Moody's Investors Service (Moody's ) downgraded Intelsat S.A.'s (Intelsat) corporate family rating (CFR) and probability of default (PDR) ratings, respectively, to Caa2 from B3 and Caa2-PD from B3-PD, and changed the ratings outlook to negative from stable. All of the company's debt instrument ratings at Intelsat Jackson Holdings S.A. were downgraded: senior secured bank credit facility, to B1 from Ba3; senior unsecured guaranteed bonds/debentures, to Caa2 from B3; senior unsecured non-guaranteed bonds/debentures, to Caa3 from Caa1. Intelsat (Luxembourg) S.A.'s senior unsecured regular bonds/debentures were downgraded to Ca from Caa2. Intelsat's speculative grade liquidity rating was affirmed at SGL-3, indicating adequate liquidity.

The actions were prompted by a combination of business fundamentals and capital structure considerations that, from Moody's perspective, signal the company's debt structure has become unsustainable. In particular, while Intelsat's major fixed satellite services peer companies report of challenging conditions in the network services sector, a segment that Moody's views being highly commoditized, with Intelsat's revenue mix disproportionately exposed to that sector, future growth prospects are uncertain. Additionally, while management views its new high throughput satellites as addressing commoditization, Moody's wonders whether they add capacity to an already over-supplied market, and it is unclear to Moody's whether ongoing negative re-pricing momentum can be curtailed. With Moody's expecting negative free cash flow in 2016 and leverage of Debt/EBITDA increasing to ~9x, it is uncertain whether the company's cash flow generation can rebound to levels required to support the timely replacement of its revenue-generating assets.

With uncertain cash flow self-sustainability, the company's 2018 debt maturity may not be refinanceable in the normal course. The $475 million residual of the 6.75% notes issued in the name of Intelsat (Luxembourg) S.A., are deeply subordinated (rated Ca, two notches below the Caa2 CFR) and there may not be market appetite to economically roll-over what cannot be repaid from cash flow. The combination of these matters caused Moody's to conclude that the company's capital structure has become unsustainable, and its ratings were downgraded.

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

Actions for Intelsat S.A.

....Corporate Family Rating, Downgraded to Caa2 from B3

....Probability of Default Rating, Downgraded to Caa2-PD from B3-PD

....Speculative Grade Liquidity Rating, Affirmed at SGL-3

....Outlook, Changed to Negative from Stable

Actions for Intelsat Jackson Holdings S.A.

....Senior Secured Bank Credit Facility, Downgraded to B1 (LGD1) from Ba3 (LGD1)

....Senior Unsecured Guaranteed Bond/Debenture, Downgraded to Caa2 (LGD3) from B3 (LGD3)

....Senior Unsecured Non-Guaranteed Bond/Debenture, Downgraded to Caa3 (LGD5) from Caa1 (LGD5)

Actions for: Intelsat (Luxembourg) S.A.

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ca (LGD6) from Caa2 (LGD6)

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 reach ~9x 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, near term refinance activities are also a negative consideration while the company's liquidity position in 2016 is a positive.

Intelsat maintains adequate liquidity (SGL-3), with a fully un-drawn $450 million revolving credit facility that is committed through July 2017, and the company had a December 31, 2015 cash position of $172 million. While Moody's anticipates the company being cash flow negative by ~$100 million over the next year, since there are no debt maturities and covenant compliance is adequate, liquidity has been assessed as adequate.

Rating Outlook

The negative outlook responds to the company's announcement that it had recently retained Guggenheim Securities, LLC to assist with evaluating "various financing and balance sheet initiatives," and with many of the company's junior-ranking securities trading at significant discounts, Moody's believes that there is the potential of opportunistic debt retirements at less than par. As this may prompt additional adverse ratings activity, the outlook is negative.

What Could Change the Rating - Up

Positive ratings pressure would develop were Moody's to expect:

• 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

Negative ratings pressure would develop were Moody's to expect an imminent default.

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.

Intelsat is the senior-most entity in the Intelsat group of companies and is the entity at which we maintain corporate family and probability of default 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, Intelsat Jackson Holdings S.A.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

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 downgrades Intelsat's CFR to Caa2; outlook now negative
No Related Data.
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