OK, admittedly, it probably wasn't a great day for anyone -- but still. Intelsat lost a big chunk of its market cap Friday after the FCC voted 3-2 to confirm that members of the C-Band Alliance -- a group of satellite communication companies including Intelsat -- would be limited to no more than about $9.7 billion in proceeds from the upcoming public reauction of C-band spectrum licensed to them by the United States government.
Considering that this auction is expected to generate proceeds of up to $77 billion, that came as a big disappointment, and Intelsat stock sank 11.5%.
Now, Intelsat is dropping another 8% as of 11:25 a.m. EST.
It seems to me that in the absence of any new news, today's decline arises from the same cause as Friday's decline.
Intelsat is lugging around a debt load of $14 billion, net of cash on hand. If the FCC's ruling stands (i.e. if it's not challenged in and overturned by a court), Intelsat can expect to reap no more than perhaps $4.85 billion out of a $77 billion auction. When all's said and done, the best-case scenario still leaves Intelsat with more than $9 billion in net debt to pay off and a free cash flow stream of only $26 million or so a year to do it with (according to data from S&P Global Market Intelligence).
At its current rate of free cash flow, and assuming nothing else changes, it's going to take Intelsat something on the order of 350 years to pay off its debt load. And at the rate technology changes, and the rate new satellite companies are being formed to compete with Intelsat, how much do you want to bet that Intelsat will still be around 350 years from now to see that debt finally paid off?
Today as Friday, investors are voting with their feet -- and running away from Intelsat stock.