An ad hoc group of convertible noteholders of Intelsat SA is seeking court authority to file a lawsuit to resolve an intercompany dispute between the parent company and one of its subsidiaries, Intelsat Jackson Holdings, concerning which unit is entitled to receive some $4.8 billion in anticipated payments from the Federal Communication Commission.
The FCC payments are known as "accelerated relocation payments" and are being paid by the government as an incentive for the company to abandon certain parts of the frequency spectrum it occupies to clear room for 5G wireless network operations in the U.S.
According to the ad hoc group's Feb. 5 motion seeking authority to file the lawsuit filed with the bankruptcy court in Richmond, Va., "Resolving which debtor estate is entitled to receive the accelerated relocation payments is a critical precondition to the parties' ability to effectively negotiate, propose, or confirm any plan of reorganization."
The lawsuit would seek a declaratory judgment that the ultimate parent entity, Intelsat SA, is entitled to receive the payments.
According to the ad hoc convertible panel, however, Intelsat Jackson Holdings and its creditors have sought to "lay claim" to the accelerated payments "and lock up their potential value to the detriment of the other debtor estates."
Intelsat Jackson Holdings is a wholly owned subsidiary of Intelsat SA through several intermediate holding companies. It is the holding company that directly owns the company's operating units and is the issuer of $11.75 billion of the company's total of $14.8 billion of funded debt obligations, including about $3.095 billion under three secured term loans and $1.84 billion outstanding under senior secured notes due on 2022 and 2024.
Intelsat SA, meanwhile, is the issuer of $402.5 million of the company's 4.4% convertible senior notes due 2025 represented by the ad hoc group (for reference, the company's remaining funded debt includes $888.3 million of 8.125% senior notes, $421.2 million of 7.75% senior notes, and $0.1 million of 12.5% senior notes issued by Intelsat (Luxembourg), and $1.25 billion of 9.5% senior notes issued by Intelsat Connect Finance S.A.).
According to the ad hoc group, Intelsat Jackson Holdings' attempts to gain control of the FCC payments were evident in its attempt to insert language into the bankruptcy court order approving the company's $1 billion debtor in possession, or DIP, facility, for which Intelsat Jackson was the nominal borrower, that would have entitled Jackson holdings to receive all of the accelerated relocation payment, an amount well above the amount need to secure the DIP. The ad hoc group said, however, that it was able to step in and add additional language to the DIP order to prevent such a definitive determination from being entered at that time.
Despite this, the ad hoc group said, "the fiduciaries for the other debtor estates did nothing to stop this attempted value grab." The ad hoc group said that while a special committee of the board of Intelsat SA has been appointed to manage intercompany conflicts, it "has confirmed that it is unwilling to prosecute the intercompany claims" in connection with the accelerated relocation payments — not because the claims lack merit, the ad hoc group contends, but because "fiduciaries normally charged with protecting the interests of Intelsat SA and its creditors here are paralyzed from taking appropriate action."
The ad hoc group also argues that the creditors' committee named in the case would not be expected to take action on behalf of Intelsat SA and its creditors because the panel's membership is dominated by creditors of Intelsat Jackson Holdings.
Intel Jackson Holding contends that it is entitled to the accelerated relocation payments because it is the direct parent of the operating units that hold the C-Band licenses for the portions of the frequency spectrum being abandoned by the company.
According to the ad hoc group, however, the FCC has already modified those licenses to exclude the use of the relevant portion of the C-Band spectrum, and it is clear from the FCC order concerning the accelerated relocation payments that the payments are not intended as compensation for any license modification, but as an incentive for future action.
According to the ad hoc group, "The accelerated relocation payments are compensation belonging to Intelsat SA as the corporate parent with ultimate responsibility both to clear the necessary spectrum and to suffer regulatory penalties for delayed clearing."
The ad hoc group continued: "The benefits of resolving this inter-company dispute are obvious. …The debtors' estates cannot be valued properly, creditor recoveries and impairment cannot be assessed, and a cloud of litigation uncertainty will hang over these companies post-emergence." The ad hoc group further asserted that with the fiduciaries in the case "refusing to take action, the intercompany claims must be brought by the convertible noteholders, as the only stakeholders capable of prosecuting the intercompany claims zealously and without conflict."
Members of the ad hoc group hold in the aggregate about $263.8 million of the convertible notes, including roughly $108.4 million held by Cyrus Capital Partners and $58.6 million held by Anchorage Capital Group. It is also worth noting that ad hoc group members also own about $423.5 million of unsecured notes at Intelsat Jackson Holdings, including about $216.8 million held by Cyrus Capital and about $116.6 million held by Anchorage Capital.
A hearing on the ad hoc group's motion for standing is set for March 17.
