Intelsat’s McLean, Va. headquarters. Photo: Intelsat

Intelsat shareholders are banding together to make sure their interests are represented in the company’s Chapter 11 bankruptcy proceedings, according to a letter that was filed with Acting United States Trustee John Fitzgerald III, who monitors the case. 

Via Satellite obtained a copy of the letter, which was signed by a group of 73 Intelsat shareholders representing 2.3 million shares. In the letter, the shareholders ask Fitzgerald for an equity committee to represent them. The letter details common shareholders’ concerns that they are not being fairly treated by Intelsat management, and as the two largest shareholders, Cyrus Capital Partners and Appaloosa LP, own both equity and debt in the company, they may be willing to accept a deal that will wipe out common shareholders. 

Intelsat filed for Chapter 11 bankruptcy on May 13. The shareholder letter was sent in advance of an upcoming court hearing on June 9. 

“[Intelsat] management deliberately defaulted on a debt payment when they had the cash on hand to pay. They also stated that the bankruptcy was only necessary to acquire a bridge loan that would allow the company to move forward on a lucrative 5G FCC contract. After filing for bankruptcy, management revealed that they had sourced the bridge loan internally, but now wished to use this opportunity for a full restructure. Wiping out shareholders would seem to be management’s logical next step – given such a lack of transparency,” the letter reads.

An Intelsat spokesperson said the company was unable to comment for this story. 

The shareholder leading the group, who asked to be identified by his first name Val, compared Intelsat to a dishonest husband or boyfriend that breaks the trust in a relationship. He thinks the group has made a strong case to have an equity committee approved.

“Management [was] giving conflicting stories, and not commenting at all. The CEO hinted that bankruptcy was a thing of the past. Management [is] violating their fiduciary responsibilities, and [with] the largest shareholders not necessarily being interested in common shares — we have a situation where common shareholders are definitely inadequately represented,” Val said. 

In reference to CEO Stephen Spengler’s comments, Val pointed to an interview that Via Satellite conducted in April, in which Spenger said he wouldn’t comment on a potential bankruptcy in the past that didn’t happen. “Our focus is on moving forward,” he said at the time. 

The three shareholders Via Satellite spoke to questioned the circumstances of Intelsat filing for bankruptcy. Intelsat’s upbeat bankruptcy announcement, that came with $1 billion of debtor-in-possession financing ready for court approval, said the company’s desire to receive accelerated relocation payments as set by the FCC for clearing C-band spectrum was a key driver for the company to restructure its balance sheet. Intelsat is eligible to receive $4.87 billion, about half of the total payments, and the operator confirmed earlier this week that it will participate in clearing the spectrum on the FCC’s accelerated timeline. 

“It seemed strange that the reason they gave was to fund the upfront costs that would ultimately be reimbursed. There were red flags,” one shareholder in the group said. “You’re getting $5 billion, you pay down your debt. Given that rates are low, is there a way to refinance the current debt structure and pay it down without having to do this?” 

The shareholder, a short term investor who invested in 30,000 shares in January, said he sold 10,000 shares at a $12,000 loss and is now holding onto 20,000 shares at $74,000 loss — a large chunk of his retirement savings. 

“If the company has been around since the 1960s, it’s crucial for the government and [U.S.] Department of Defense, how do we get to this spot? If I’m Intelsat, it makes perfect sense that I can just start over with wiping out my debt. I guess it is a sad state of where we are in Wall Street and the bankruptcy laws that allow that to happen,” he said.  

The letter also points to allegations of insider trading in the ongoing shareholder class action lawsuit James Hill v. Silver Lake Group, LLC as evidence that Intelsat management has not acted in the best interest of shareholders. The lawsuit alleges defendants BC Partners and Silver Lake Group, L.L.C. traded Intelsat shares in November while possessing non-public information about the private FCC C-band auction. “If these allegations are true, it can be reasonably inferred that someone in a senior role within the company tipped off the largest shareholders,” the letter says. 

Equity Analyst Giles Thorne of Jeffries, believes Intelsat’s management team has been even-handed, but the company has dealt with “bad luck” with the failure of Intelsat 29e and Intelsat 27. Then with the FCC’s surprising turn away from a private C-band auction to a public one, coupled with the COVID-19 pandemic, put the company in the spot to file for bankruptcy. 

“Over the past two years, [shareholders believed] that this was a very, very exciting situation where you could see zombie equity come back to life. And for a long time, it looked like that was going to happen,” Thorne said. “Because of this unique set of circumstances around the C-band situation, unfortunately, politics got in the way of sensible policy. And what we have now is a bit of a fudge. And part of the collateral damages is the death of Intelsat in its current form.” 

One investor named Matt Price, who invested in December 2019 and holds 10,000 shares, believes Spengler misled investors and sees the situation as an example of “corporate greed.” Price took issue with a roughly $1 million retention bonus Spengler received on or around May 6, according to SEC filings and first reported on by Space News.  

“Bringing in around $2 billion dollars a year at the moment is a great deal of money. For a CEO to mislead his investors and leave them in the dark like he has is unacceptable,” Price said. “He also received a million dollar bonus right before filing bankruptcy. It seems as if he wants to wipe the shareholders out for his own financial gain.”