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Rating Action:

Moody's rates Intelsat Jackson's new notes B3

Global Credit Research - 16 Sep 2010

$900 million of new notes rated; Intelsat SA's Caa1 CFR and stable outlook affirmed

Toronto, September 16, 2010 -- Moody's Investors Service (Moody's) assigned a B3 rating to Intelsat Jackson Holdings, S.A. (Intelsat Jackson) new $900 million 10-year note issue. The new notes are guaranteed by Intelsat Jackson's indirect, wholly-owned subsidiary, Intelsat Subsidiary Holding Company, S.A. (Intelsat SubHoldCo) and rank equally with other senior notes issued by Intelsat Jackson and guaranteed by Intelsat Subholdco. Intelsat Jackson is an indirect, wholly-owned subsidiary of Intelsat, S.A. (Intelsat), the senior most company in the Intelsat group of companies for which we maintain ratings; per usual practice, the corporate family rating (Caa1) and ratings outlook (Stable) are in the name of Intelsat.

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

Assignments:

..Issuer: Intelsat Jackson Holdings S.A. (formerly Intelsat Jackson Holdings, Ltd.)

....Senior Unsecured Regular Bond/Debenture, Assigned B3 (LGD3, 33%)

Other Ratings and Outlook Actions:

..Issuer: Intelsat S.A. (formerly Intelsat, Ltd.)

....Corporate Family Rating, Affirmed at Caa1

....Probability of Default Rating, Affirmed at Caa1

....Outlook, Affirmed at Stable

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

....Senior Unsecured Regular Bond/Debenture, Affirmed at Caa3 (LGD6, 95%)

..Issuer: Intelsat (Luxembourg) S.A. (formerly Intelsat (Bermuda), Ltd.)

....Senior Unsecured Regular Bond/Debenture, Affirmed at Caa3 (LGD5, 84%)

..Issuer: Intelsat Jackson Holdings S.A. (formerly Intelsat Jackson Holdings, Ltd.)

....Senior Secured Bank Credit Facility, Affirmed at B3 with the LGD Assessment Revised to LGD3, 33% from LGD3, 34%

....Senior Unsecured Regular Bond/Debenture, Affirmed at B3 with the LGD Assessment Revised to LGD3, 33% from LGD3, 34%

....Senior Unsecured Regular Bond/Debenture, Affirmed at Caa2 LGD4, 65%

..Issuer: Intelsat Intermediate Holding Company S.A. (formerly Intelsat Intermediate Holding Company, Ltd.)

....Senior Unsecured Regular Bond/Debenture, Affirmed at Caa2 with the LGD Assessment Revised to LGD4, 59% from LGD4, 58%

..Issuer: Intelsat Subsidiary Holding Company S.A. (formerly Intelsat Subsidiary Holding Company, Ltd.)

....Senior Secured Bank Credit Facility, Affirmed at B1 with the LGD Assessment Revised to LGD1, 4% from LGD1, 5%

....Senior Unsecured Regular Bond/Debenture, Affirmed at B3 with the LGD Assessment Revised to LGD3, 33% from LGD3, 34%

..Issuer: Intelsat Corporation

....Senior Secured Bank Credit Facility, Affirmed at B1 with the LGD Assessment Revised to LGD1, 4% from LGD1, 5%

....Senior Unsecured Regular Bond/Debenture, Affirmed at B3 with the LGD Assessment to Revised LGD3, 33% from LGD3, 34%

RATING RATIONALE

Intelsat's corporate family and probability of default ratings (CFR and PDR respectively) are Caa1 and the ratings outlook is stable. Most of the new issue proceeds, $830 million, will be used to retire existing debt in the name of Intelsat Corporation ($658 million of senior notes due 2014 and $125 million of senior notes dues 2028; applicable ratings will be withdrawn in due course). The balance will fund accrued interest, pay fees and expenses, and bolster consolidated liquidity. In aggregate, as the company's consolidated GAAP debt increases by less than 1%, the transaction does not have a material impact on Intelsat's consolidated credit profile and, accordingly, its Caa1 CFR and PDR and stable ratings outlook remain unchanged. We do, however, view the transaction as being positive step, continuing recent actions to extend maturities, harmonize terms and conditions, and simplify the debt structure.

We note that Intelsat Corporation's debt load is decreasing while that at Intelsat Subholdco (by way of guarantee) is increasing. However, we continue to apply our loss given default methodology in a manner that, despite differences in leverage, treats the two companies as having equivalent credit profiles. We think that operational matters, capital expenditure planning, and transfer pricing mechanisms suggest that, despite apparent differences in leverage, the two quasi-operating companies have similar credit profiles. Consequently, the exercise of relocating debt from Intelsat Corporation to Intelsat Subholdco has no impact on ratings for individual instruments. Lastly, while the refinance transaction augments Intelsat's consolidated liquidity position, as we expect the company's capital expenditure program to continue to leave a somewhat limited liquidity cushion, Intelsat's SGL-3 speculative grade liquidity rating (adequate) remains unchanged.

Intelsat's defining ratings factor is elevated financial leverage (LTM Debt-to-EBITDA incorporating Moody's standard adjustments is 8.5x) resulting from debt-financed ownership changes and risks that the company will not be able to grow its cash flow stream in order that all of its substantial interest burden, capital expenditures and periodic cash income tax obligations can be met from operating cash flow. Longer term, this equation will also, presumably, expand to include returns being provided to equity holders. The company's financing thesis is predicated upon top-line growth and margin expansion as broadband demand continues to grow. Together with permanent reductions in capital expenditures as the company's very large satellite constellation is rationalized over time, this will facilitate improvements in capacity utilization and profit margins. In the interim, the Caa1 rating is driven by the gap between the cash flow negative status quo and the execution risks and uncertainty related to the company becoming comfortably cash flow self-sustaining. These matters also serve to highlight the very important role that the company's liquidity arrangements play. The ability to address temporary FCF shortfalls without jeopardizing overall financing arrangements is crucial.

Rating Outlook

As noted above, the ratings outlook is stable. With growing EBITDA and liquidity sufficient to fund the next several quarters, downwards rating pressure is manageable. However, until positive free cash flow can be anticipated to be sustained, upwards ratings momentum is limited.

What Could Change the Rating -- Up

A ratings upgrade is not expected until Intelsat can substantiate the ability to be cash flow self-sustaining. Given the current debt load, this should be observed when EBITDA approaches $2.4 billion and Debt/EBITDA approaches and then falls below 6.5x. Upon this milestone being observed/anticipated and supported by trends that are expected to be sustained, and presuming solid liquidity arrangements, upwards rating pressure would result.

What Could Change the Rating -- Down

In the near term, Intelsat's rating is tied to its liquidity arrangements; they will provide the initial warnings of the company's plan coming under stress. In this regard financial covenants (and restricted payment baskets) will be key. Should applicable cushions be permanently eroded, downwards ratings actions may be required.

Corporate Profile

Headquartered in Luxembourg, Intelsat is the largest fixed satellite service operator in the world and is privately held by financial investors.

The principal methodologies used in rating Intelsat S.A. were Global Telecommunications Industry published in December 2007, Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2006, and Speculative Grade Liquidity Ratings published in September 2002. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Toronto
Bill Wolfe
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

Toronto
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635

Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada

Moody's rates Intelsat Jackson's new notes B3
No Related Data.
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