Investing.com -- Moody’s Ratings has downgraded the corporate family rating (CFR) of Telesat Corporation to Caa2 from Caa1, citing concerns over refinancing risk. The downgrade affects approximately $3.4 billion of rated debt.
The rating agency also confirmed Telesat’s Caa2-PD probability of default rating. Furthermore, the company’s speculative grade liquidity rating (SGL) was downgraded to SGL-4 from SGL-1. However, the outlook for the company remains stable.
Moody’s also downgraded the ratings for Telesat’s main operating subsidiary, Telesat Canada. The senior secured bank credit facility and senior secured notes ratings were downgraded to Caa2 from B3, and the senior unsecured notes rating was downgraded to Ca from Caa3. The outlook for Telesat Canada also remains stable.
Peter Adu, Vice President and Senior Credit Officer at Moody’s Ratings, stated that the downgrade reflects the increased refinancing risk associated with the company’s debt maturities due in 2026.
The Caa2 CFR assigned to Telesat is influenced by several factors. These include the risk of continued discounted debt repurchases due to weak debt trading prices and the high likelihood of a debt restructuring. The company also faces high business risk due to ongoing revenue and EBITDA declines in its geosynchronous (GEO) satellite business, which is facing technological changes and competition.
Telesat’s debt/EBITDA ratio is expected to remain above 10x until its low earth orbit (LEO) satellite constellation, Telesat Lightspeed, becomes operational and starts contributing significantly to EBITDA. The company’s high customer concentration and smaller scale relative to its peers also contribute to the Caa2 rating. However, the rating benefits from the support of the Canadian government, which has allowed the Telesat Lightspeed project to commence, and strong margins relative to peers.
Telesat Canada’s debt comprises two classes: a Caa2-rated $1.9 billion term loan B due in December 2026, $500 million secured notes due in December 2026, and $400 million secured notes due in June 2027. The second class includes Ca-rated $550 million senior unsecured notes due in October 2027.
Telesat’s liquidity through December 31, 2026, is weak, with sources approximating C$3 billion versus uses of about C$3.4 billion. The company’s liquidity sources consist of cash of C$797 million as of March 31, 2025, and residual government funding of about C$2.2 billion. The company does not have a revolving credit facility as its prior $200 million facility expired in December 2024 and was not renewed.
The stable outlook reflects the commencement of the Telesat Lightspeed project, which is expected to ensure a brighter future for the company. The stable outlook also assumes that if the company engages in a debt restructuring, recoveries for lenders will align with Moody’s current estimates as reflected in the ratings.
The ratings could be upgraded if the company establishes a sustainable capital structure with a flexible debt maturity profile. Conversely, the ratings could be downgraded if the company defaults on its debt or if recoveries for lenders in a debt restructuring are lower than current estimates.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.