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Investing.com -- S&P Global Ratings has downgraded the credit rating of satellite provider Telesat Canada from ’CCC+’ to ’CCC-’ due to ongoing revenue erosion and customer losses in its legacy geosynchronous earth orbit (GEO) satellite business. The ratings agency also revised its liquidity assessment of the company to less than adequate, citing a negative outlook.
Telesat’s revenue fell by 23% in the first quarter of 2025, compared to the same period in 2024. The decline was mainly due to lower renewal rates on long-term agreements with a North American direct-to-home television customer, reduced demand from other customers, and lower equipment sales to Canadian government customers. The pace of revenue decline has been accelerating since the fourth quarter of 2023.
S&P Global Ratings also highlighted the company’s refinancing risk related to its $1.9 billion senior secured term loan and $500 million senior secured notes, due in December 2026. It noted that Telesat’s ability to refinance its debt at par is highly uncertain due to ongoing earnings weakness and limited capital market access. The agency sees increased risks of a distressed exchange over the next 6-12 months.
The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) is also expected to decline significantly in 2025. This is due to the impact of lower rates associated with the renewal of the Nimiq 5 agreement with DISH, the nonrenewal of contracts, and softness in its enterprise and consulting segment. The company’s EBITDA interest coverage ratios are expected to be tight at about 0.7x for 2025.
Despite these challenges, Telesat continues to focus on developing its low-earth orbit (LEO) satellites. The company has secured several contracts and reported a total order backlog of C$1.1 billion for the LEO program. In September 2024, Telesat secured $2.54 billion of funding from the governments of Canada and Quebec to build its LEO satellite constellation. However, the competitive landscape for LEO satellites is intense, with competitors like Starlink already capturing some of the market share in certain satellite business-to-business spaces, such as marine and in-flight Wi-Fi services.
The negative outlook reflects S&P Global Ratings’ expectation that Telesat’s capital structure remains unsustainable given declining EBITDA, upcoming debt maturities, and difficult market conditions, which could lead to a debt restructuring. The ratings could be lowered further if the company announces or completes any type of debt restructuring transaction that S&P Global Ratings views as distressed and tantamount to a default. However, the rating could be raised if Telesat demonstrates a successful path to refinance its existing debt and execute the LEO project while managing headwinds in the legacy GEO satellite business and maintaining a sufficient liquidity cushion.
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