S&P Places Intelsat S. A. (I) Ratings on Watch for Possible Downgrade

Standard & Poor's Ratings Services today said it placed its ratings, including its 'B+' corporate credit rating, on Luxembourg-based Intelsat S. A. (NYSE: I) on CreditWatch with negative implications.

"The CreditWatch placement reflects a revision in our base-case forecast for Intelsat due to its lower-than-anticipated guidance for 2015, and our expectation that weakness could persist into 2016 due to pressure in network services, continued uncertainty around government demand, and potential delays in revenue contribution from the launch of its first high-throughput (HTS) satellite, IS-29e (Epic)," said Standard & Poor's credit analyst Michael Altberg.

The company had originally planned to launch IS-29e in the second half of 2015, but now expects likely delays until the first quarter of 2016.

Under our base-case forecast, in 2015 we now expect revenue to decline around 5%, and for adjusted leverage to increase to about 8.1x from 7.7x in 2014. The company has guided to revenue declines of 7%-10% in network services for 2015, which is above our original expectations of mid-single-digit declines, due to incremental pressures in Latin America and an accelerated roll-off in legacy point-to-point services.

With IS-29e most likely not becoming a revenue contributor until the second half of 2016, under our base-case forecast we believe that revenue could decline at a low-single-digit percent rate, and that adjusted leverage could remain above 8x. We expect free operating cash flow to be modestly positive in 2015 and 2016, and for liquidity to remain adequate. However, a resumption of revenue growth and improvement in leverage metrics is increasingly dependent on the success of Intelsat's Epic platform. We believe HTS satellites carry the potential for additional applications, added backhaul capacity, and most importantly, mobility opportunities. However, we also see risks around potential oversupply and pricing pressure, especially as IS-29e (expected to launch in the first quarter of 2016) will provide additional capacity in Latin America, while IS-33e (scheduled to launch in the second half of 2016) will bring further coverage over regions such as Africa and the Middle East, all of which are currently experiencing pricing pressure and fiber competition.

We plan to resolve the CreditWatch listing over the next several weeks based on discussions with management and our view of longer-term business prospects. We currently believe that a potential downgrade would be limited to one notch.

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