Intelsat S. A. (I) Ratings Placed on CreditWatch Negative by S&P

Standard & Poor's Ratings Services said that it placed its ratings on Intelsat S.A. (NYSE: I) and all of its subsidiaries, including the 'B' corporate credit rating, on CreditWatch with negative implications.

The CreditWatch placement follows the company's announcement that it expects revenue to decline 6.5%-9% in 2016, which is well above our original base-case forecast for a 3% revenue decline. As such, we expect adjusted debt to EBITDA will increase to about 9x in 2016 from about 8.1x in 2015, and that free operating cash flow will be negative this year due to lower than expected revenue and EBITDA performance. The underperformance is led by a 15%-17% decline in network services revenues. While we had previously anticipated 2016 would be the trough year for Intelsat, the steeper than expected revenue decline highlights the continued pricing pressure Intelsat is facing in network services across various regions as contracts renew, outside of the ongoing roll-off of its legacy point-to-point and channel services. In our view, this places increased uncertainty as to the timing and extent of the anticipated revenue rebound and leverage improvement in 2017 and beyond as a result of the Epic satellite platform.

In addition to 2016 guidance, the company announced that it hired Guggenheim Securities, LLC to advise the company on financing and balance sheet initiatives. The company has $500 million ($475 million outstanding) of 6.75% senior notes at Luxembourg due in June 2018. In the third quarter of 2015, the company put a $360 million intercompany loan ($347 million outstanding at Dec. 31, 2015) in place from a subsidiary of Intelsat Luxembourg to Intelsat Jackson, which is pre-payable at any time and can be used to repay a portion of the 6.75% senior notes without triggering the 6x restricted payment test at Jackson. We expect that leverage will likely remain above 6x through Jackson over the next several years, which would limit the company from making cash distributions from Jackson up to Luxembourg absent the use of permitted investment baskets.

In resolving the CreditWatch listing, we will review the company's strategy regarding its capital structure and financing initiatives. Based on our view of the company's adequate liquidity and lack of near-term debt maturities, we currently believe that ratings downside will be limited to one notch on the corporate credit rating. A multiple notch downgrade could result if we conclude the capital structure is unsustainable absent a subpar exchange.

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