In times of economic gloom, investment banks, export credit agencies and private equity companies look to find safe investments in companies that provide few risks. Over the past year, the satellite sector has proven itself as a representative of these solid and safe bets.
This reputation has put satellite companies, particularly those established operators with predictable cash flows going forward, in the best position to gain financing in the difficult economic climate. “I think this is one of the best capital markets period in my career to raise capital. If you were to go back and count every day since January 1990 that the high-yield index has had absolute yield levels below the current levels, you would find that only 3 percent of the days in the last 20 years had lower yields, so on an absolute yield basis, we are in the 97th percentile of history,” says Fred Turpin, managing director, JP Morgan. “Very low treasury yields are a big driver of the current market. Treasury yields are low due to the weak economy as well as government policy in the United States. If treasury yields rise in the future, then high-yield is likely to become more expensive. Right now, we are in as good of an environment as we could ever hope to be.”
James Murray, managing director, Morgan Stanley, says FSS operators have an historic opportunity to access debt capital with the most attractive absolute rates seen in a generation. “The high-yield market is actually stronger than it was in the early fall. It is hard to say how long this window will remain open, but issuers and underwriters remain optimistic, and the backlog of offerings is large. The high-yield market is robust right now for cash flow-positive operators but less so for start-ups. There are a number of smaller players who are, as a result, looking for equity capital,” he says.
Turpin highlights the performance of satellite companies throughout the last few years as an example of why they are viewed so favorably by investment banks. “If you look at the FSS sector, these companies have strong businesses, predictable revenues and visible backlog — all of which the credit markets like. They especially like predictability, because the last three years were so difficult in the market and you have had North American FSS players so highly levered at the time, investors had the opportunity to watch these assets perform financially in extremely difficult capital markets, and they performed extremely well. Even though Telesat and Intelsat were once levered at 8 times EBITDA, the businesses performed just fine with very high levels of leverage. Now that the markets are better, debt investors feel even better about these businesses,” he says.
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