Panamsat, according to a Dec. 20, 2004, Form S-1 filed with the Securities and Exchange Commission, will be looking to raise $1.12 billion in an initial public offering. The planned date of the offering, the amount of shares to be issued and the price per share was left off the S-1 and would be available in later, revised versions of this form. The company did not specifically name which market it is seeking to have its stock listed on and did not offer a proposed ticker symbol.

The seeking of public funds comes just four months after Panamsat was acquired by private equity firms Kohlberg Kravis Roberts & Co. L.P., (which currently owns about 44 percent of Panamsat), The Carlyle Group (27 percent) and Providence Equity Partners Inc. (27 percent). Certain members of Panamsat management hold the remaining ownership interest in the company. Representatives from Panamsat declined to comment on the filing. The Form S-1 did not say how the IPO would dilute the current ownership interest in the company.

The Form S-1 estimated the net proceeds from the public offering, after deducting underwriting discounts, estimated offering expenses and a fee paid to the private equity firms that purchased the company for terminating the management services agreements will be approximately $934.3 million. The Form S-1 states that Panamsat intends to use the proceeds to repay about $730.2 million in debt. An additional $200 million will be used to pay a dividend to existing shareholders.

A Glimpse Into Panamsat’s Business

The Form S-1 offered a glimpse into how Panamsat is performing. As of Sept. 30, 2004, the company had 24 satellites in orbit hosting 491 C-band and 486 Ku-band transponders, down from 25 satellites and 522 Ku-band transponders at the same point in time in the previous year. The number of C-band transponders remained the same during that time period. The company said in the Form S-1 that its C-band capacity utilization was 83 percent as of Sept. 30, 2004, up from 76 percent as of Sept. 30, 2003. Over that same time, Ku-band capacity dropped to 67 percent from 70 percent.

The Form S-1 also noted Panamsat has outstanding debt of approximately $3.32 billion, representing 75 percent of the company’s capitalization as well as availability of $213.9 million under a revolving credit facility.

The company also noted in its Form S-1 that 56 percent of its business is generated outside of the United States. Additionally, the company noted in the Form S-1 that “the fixed satellite services industry has demonstrated certain weaknesses recently: demand for video services in many of the global markets we serve has been relatively flat; pricing pressure has been experienced in certain international markets due to overcapacity and regional economic downturns; and some of our existing international DTH service customers are in the process of rationalizing their cost structures, including satellite capacity costs, to match their existing and projected revenues. In addition, anticipated increases in demand, including with respect to high definition television services, may fail to materialize to the extent we expect. Any of these dynamics could negatively affect our operations and financial condition.”

The First Of Many IPOs?

While the timing of the filing for an IPO just four months after the company was acquired comes as a bit of a shock to industry observers, it is being viewed as a positive development for the company and the industry in general.

“I see it as a positive sign,” D.K. Sachdev, President, SpaceTel Con-sultancy LLC told Satellite News. “From the point of view of the investors, perhaps it is part of an exit strategy or a strategy that already had in mind to recover the investment or multiply it if they can. From the point of the view of the industry, this is a good sign. You know very well that Intelsat and Inmarsat went to Congress to delay [mandated IPOs] because the market conditions were not good [as the companies approached the June 30, 2004 deadline for IPO filing]. Now here is a voluntary entry into the IPO market by another major carrier. They are not obliged to do it. It’s there decision to do it. To me, this tells me they see the market is good for satellite IPOs to come out. From that point of view I see it as a positive sign for the industry. I won’t be surprised if this works out, then others will also follow.”

Sachdev did not speculate which other companies might jump on the IPO bandwagon.

Timothy Logue, principal of TJLNova Consulting expressed a bit more caution with regards to the interpreting the filing as a definitive statement that the company would actually move forward with an IPO. He noted that the company files the necessary paperwork, the SEC returns it with comment and the company sends over a final version and once that is approved, the company can move forward with the IPO.

“Just because they filed this [Form S1] doesn’t mean that they are going to offer stock right away,” Logue said.

That being said, “I think it’s a little hard to judge whether it’s the right time, whether the market is ready for a fixed satellite type offering but if there financial numbers for 2004 are going to look good, it might be a good time to file,” Logue told Satellite News. “The market is generally up. The market is being generally favorable to the few satellite [stock] issues that are out there right now. They may figure the market is not spinning on technology issues so lets be prepared to do this.”

“The key point is that the private equity firms that got in are going to look at this and say ‘maybe we can cash out,'” Logue said. He said they won’t be able to sell the whole company right now but private equity firms view this as an investment and a public offering helps them get a return on that investment. What the IPO does for private equity is “it puts a value on what they have” because all you’ve got when you are private equity and no part of the company is traded is a notional value of the company. Once the company is out there for public investment, a clearer value can be placed on the company. “I think that’s part of it. They want to have a real value for their holdings.”

Logue also speculated that given the number of satellite companies currently held by private equity firms, Panamsat may be looking to be the first of the bunch to get in public funding.

“I think they may be taking soundings form the market and thinking there may be a market for these shares,” Logue said, adding that Panamsat has traditionally been a strong company. “Knowing that the technical behavior pattern for private equity like this is to go back to the market sooner rather than later, they may want to be first. Given that there are all of these other companies in much the same status, all of these folks might be interested following [Panamsat] since they can’t beat them. [Panamsat] might have been anticipating [a wave of IPO filings and said] ‘I want to be in there and prepared to go first rather than be second in line.”

If this IPO materializes and is successful in raising money for Panamsat, Logue said it is “quite possible” that others will in fact follow suit. “I think [other companies] will watch this carefully. If Panamsat investors get a good price” other companies will follow them into the public market.

–Gregory Twachtman

(D.K. Sachdev, SpaceTel Consultancy, 703/757-5880; Timothy Logue, TJLNova Consulting, 703/608-0266)