Gold prices steady ahead of Fed decision; weekly weakness noted
Investing.com -- Moody’s (NYSE:MCO) Ratings has adjusted the outlook of global satellite services provider SES S.A. (SES) and its subsidiary SES AMERICOM, INC from stable to negative. The ratings agency also affirmed SES’s Baa3 long-term issuer rating and its ba1 Baseline Credit Assessment (BCA). Additionally, the Baa3 backed senior unsecured ratings and the (P)Baa3 backed senior unsecured EMTN programme ratings of SES and its subsidiary have been affirmed, along with the Ba2 backed junior subordinated (hybrid) ratings of SES, and the Prime-3 (P-3) short-term backed commercial paper ratings of SES and SES AMERICOM, INC.
The revision in outlook is due to increased risk in the operating performance and deleveraging path of the combined SES and Intelsat entity. This is attributed to growing competition and higher innovation risk in the satellite industry, according to Ernesto Bisagno, a Moody’s Ratings Vice President - Senior Credit Officer and lead analyst for SES.
The satellite industry’s fundamentals have been impacted by increased competition and innovation risks, which are expected to exert sustained pressure on prices. This could potentially increase the risk to the company’s earnings growth and deleveraging ability. SES has also experienced a significant reduction in its equity market valuation, which may limit its access to the equity market if needed.
Despite the expected growth in the underlying connectivity market, there is a risk of market oversupply due to the continued supply growth from non-Geostationary Orbit (NGSO) Satellites, particularly in the consumer broadband market, which is not targeted by SES and Intelsat. This surplus capacity could potentially be redirected to other market verticals where the combined entity has a strong position, such as maritime, aviation, and government, leading to overcapacity in those areas.
SES’s financial profile has weakened due to the anticipated increase in net debt to support the acquisition of Intelsat Holdings S.a.r.l. for an enterprise value of $5 billion (€4.6 billion). This could potentially lead to some deterioration in credit metrics in 2025, with Moody’s adjusted gross debt-to-EBITDA ratio for the combined entity increasing to 3.8x from 3.5x expected in 2024.
The Baa3 rating is a combination of the company’s Baseline Credit Assessment (BCA) of ba1 and a one-notch uplift due to the expectation of moderate support from the government of Luxembourg, which holds an aggregate stake in SES of around 20%.
Despite the expected reduction in the cash balance following the acquisition of Intelsat, SES’s liquidity is considered good, with the company expected to maintain undrawn liquidity of €1.65 billion. This includes a €1.2 billion revolving credit facility due in June 2028, and €450 million EIB facilities.
The negative outlook reflects the challenging market conditions for the satellite industry, with increased risk on the combined entity’s ability to generate positive earnings growth over 2025-26. The negative outlook also reflects Moody’s expectation that SES’s adjusted gross leverage will increase to 3.8x in 2025, and only return to around 3.0x by 2027.
The rating could be downgraded if competitive dynamics in the satellite industry drive further pricing pressures, if the company’s operating performance deteriorates relative to forecasts, or if the Luxembourg government or its wholly owned investment affiliates reduce their aggregate economic ownership in SES below the current level of around 20%. Conversely, upward pressure on the rating could develop if the company’s operating performance materially improves, allowing the company to generate positive FCF and reduce its leverage.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.