A company representing bondholders of struggling Ottawa-based satellite operator Telesat filed a pair of lawsuits in Ontario and New York earlier this week alleging that the firm breached a credit agreement by executing some “fraudulent” asset transfers last year.
A court document reviewed by BetaKit claims that Telesat Canada illegally moved part of its “crown-jewel” low-earth-orbit (LEO) satellite communications business, Telesat Lightspeed, beyond the reach of its lenders ahead of a large and looming debt repayment deadline.
Telesat announced in September that it transferred 62 percent of the equity in its Lightspeed unit from Telesat Canada into an indirect subsidiary of its parent company.
Plaintiff Wilmington Savings Fund Society, which filed this suit on behalf of creditors holding the majority of Telesat’s upcoming debt, is seeking to unwind this transfer.
Telesat asserted that Wilmington’s lawsuits “are without merit.”
In its Jan. 21 statement of claim, filed with the Ontario Superior Court of Justice in Toronto, US-based Wilmington alleged Telesat conducted this transfer because it is “indisputably insolvent” and unable to pay its debt. These allegations have not been proven in court.
Telesat holds $1.7 billion USD worth of debt maturing this December and another $450 million due next year, according to the document. Wilmington, which is representing creditors holding the majority of that $1.7 billion, is seeking to unwind this Lightspeed asset transfer.
In a Jan. 21 statement, Telesat asserted that Wilmington’s lawsuits “are without merit.” Telesat claimed that the lawsuits were “filed at the direction of a group of distressed debt hedge funds” that hold portions of its legacy geostationary earth orbit (GEO) debt.
“The equity distribution at issue followed a robust governance process and was accomplished in strict accordance with relevant debt agreements and applicable law,” Telesat stated. “Telesat intends to defend itself vigorously.”
BetaKit has reached out to Telesat and Wilmington for additional comment.
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At time of publication, Telesat’s stock price had fallen by nearly 18 percent on the TSX and 14 percent on the Nasdaq, respectively, since news of this lawsuit first emerged two days ago.
With help from lenders including the Canadian and Québec governments, Telesat has spent years investing heavily to build its next-generation LEO satellite constellation, Lightspeed, which it expects to be a key driver of growth going forward.
But following delays thanks to financing challenges and pandemic supply chain issues, LEO is still under development and not expected to start generating revenue until at least 2027, placing significant financial pressure on Telesat in the meantime given its aging GEO fleet.
Feature image courtesy Telesat.