David Tepper joins throng of hedge fund managers in Intelsat

Via Financial Times

David Tepper’s Appaloosa Management has taken a 7 per cent equity stake in Intelsat, becoming the latest hedge fund to weigh on the high-stakes battle over the satellite operator’s valuable wireless spectrum.

Mr Tepper on Tuesday urged Intelsat to reject a plan put forward by US regulators to auction off its airwaves for use by phone companies for new 5G mobile networks. If it cannot be renegotiated, Mr Tepper said, the company should seek bankruptcy protection and launch a legal challenge.

Under the plan put forward by the Federal Communications Commission, Intelsat stands to make as much as $4.85bn for giving up airwaves that can be sold to cellular operators such as Verizon and T-Mobile.

But many investors last year expected it could make much more, and numerous hedge funds had taken positions in the company’s shares and bonds and are now sitting on significant losses.

“The token compensation offered to Intelsat is an affront when compared to the values achieved in auctions of comparable spectrum across the globe over the past decade,” Mr Tepper wrote in a letter to the company’s board on Tuesday. Appaloosa disclosed a 7.4 per cent stake in Intelsat in a securities filing, making it the company’s third-largest shareholder. 

Luxembourg-based Intelsat was among a consortium of satellite companies which had pushed for permission to sell parts of their spectrum privately to wireless operators, but the plan was opposed by members of the US Congress who said a public auction would allow a fairer distribution of assets.

FCC chairman Ajit Pai announced in November that the government would auction off a portion of the “C-band” spectrum used by the satellite operators for video and radio transmission. 

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Bonds issued by Intelsat, which has about $15bn in debt, hit record lows at the end of January and shares in the company are down 85 per cent since Mr Pai’s announcement. PointState and Solus are among the hedge funds to have taken positions.

Under the terms of the regulator’s proposal, the company would be required to front up its own cash to cover the costs of clearing the spectrum for auction, something Mr Tepper said could run into billions of dollars. 

Intelsat will be made to bear the “full weight of financial and execution risks” related to the auction while the FCC and US government reap the benefits, he wrote. “For a highly leveraged operator, such as Intelsat in particular, the cash required to conduct that process imposes a hardship that could easily trigger an insolvency before relocation can be accomplished,” Mr Tepper said. 

Intelsat said in a statement that it would “assess all options to maximise value for the benefit of our stakeholders” and that its focus was on “successfully improving” the FCC’s plans. “We look forward to continuing to engage and work with our stakeholders as appropriate in this process,” a spokesperson said.