Credit Crisis Threatening Intelsat Deal?

The current credit crisis isn’t just hitting the housing market. Last June, BC Partners agreed to buy satellite operator Intelsat. Now, BC Partners is requesting an "unusual" exception, asking "existing lenders to finance the purchase instead of selling a new financing in the open market." The current credit conditions make it very difficult to sell loans.

If Credit Suisse’s proposal is accepted, it would be relieved of the task of refinancing the bank loans for Intelsat and PanAmSat. New financing would still be required to finance the purchase, but the amount needed would be much smaller than the $5.1 billion commitment, as lenders would have agreed to roll the existing credit agreement into the new company.

The terms of Credit Suisse’s proposal are unusual in that the bank is asking lenders to loosen the definition of a "change of control" clause in the existing credit agreement. Usually, this clause will trigger a repayment of bank debt, but under the current proposal, a change of control would not be triggered.

For some background on Intelsat:

Intelsat, a global satellite network set up in 1965 by the national telecom operators of several Western countries, is being sold by a group of four buyout funds. Apax Partners, Permira, Apollo Management and Madison Dearborn Partners bought the company for about $3.1 billion in 2004. They added PanAmSat, a rival operator, for $3.2 billion in 2005.

Intelsat, based in Washington, operates 51 satellites used by cable companies, broadcast networks and governments for distributing video programming. It leases capacity to television companies rather than providing content itself.

The company has about 35 per cent global market share and last year reported $1.7 billion in revenues and adjusted earnings of $1.3 billion. Just under half its business is in North America, with 15 per cent of profits driven by Europe and 17 per cent from the Middle East and Africa.

Despite the credit conditions and the uncertainty surrounding the Intelsat transaction , BC Partners remains upbeat:

BC Partners, the international private equity group have today said they are anticipating returns in excess of 20% on the group’s sub-prime linked investment portfolio, despite the ongoing unrest in the global credit marketplace, according to a top executive today.

Stefan Zuschke of the group’s German operation said that the group was still looking forward to returns of as much as a fifth from its portfolio, despite the collapse of the sub-prime sector which left many banks and investment firms heavily out of pocket and forced to take severe writedowns against their balance sheets.

Whilst it was said that the credit crunch made for difficult times for investment firms, given increasing reluctance from banks to put up the cash for acquisitions and buy-outs at the same rate as before, he added that 2008 would see a return to the previous levels of spending and somewhere in the region of the same level of market confidence and optimism.