"The downgrade of Inmarsat's ratings reflects our expectation that over 2018 and 2019, Inmarsat's leverage and free cash flow will continue to be weak vis-a-vis the thresholds for the existing Ba1 rating due to its sizeable capex program, the anticipated loss of a high-margin revenue stream from Ligado and EBITDA margin dilution in its high-growth Aviation segment," Moody's Vice President & Senior Analyst Alejandro Nunez said.
"However, we view positively Inmarsat's decision to significantly reduce its dividend payout and maintain its net leverage policy," Nunez added.
In 2017, Inmarsat's free cash flow fell 85% to
Moody's expects Inmarsat's free cash flow in 2019 and 2020 to negative throughout the period.
Moody's highlighted that Inmarsat was anticipated to lose a "high margin" revenue stream of nearly
Last Friday, Inmarsat cut its full year dividend by 38% to 33.37 US cents in part due to what it termed "lack of visibility" over its Ligado Networks cash payments beyond the end of 2018.
Payments from the Ligado contract will pause in 2019, Inmarsat explained. Payments will then resume in 2020 at around
The credit rating agency expects low single-digit revenue and earnings before interest, taxes, depreciation and amortisation in Inmarsat's Maritime unit. In Aviation, it expects "strong" double-digit revenue and Ebitda growth but with margin dilution due to higher installation costs.
In contrast, Moody's anticipates mid-single digit revenue and Ebitda declines for Inmarsat's Government and Enterprise units.
Moody's also warned of "increasing competition in both the Aviation and Maritime segments - including the advent of direct competition from Iridium's forthcoming Certus Broadband services - which Moody's believes will challenge Inmarsat's dominant market position in maritime connectivity services."
Iridium is set to launch its L-band NEXT satellite into commercial service in 2018. This will offer maritime broadband services expected to be faster than those offered by Inmarsat.
The credit rating firm noted the planned 20 US cent full year dividend for 2018 was 63% lower than the year before. This will reduce total dividend cash payments to
"While the company's decision to cut the dividends is credit positive," Moody's explained, "it will not be enough to fully offset the expected deterioration in credit metrics owing to the loss of revenues from Ligado."
Moody's did emphasise Inmarsat had "adequate" near term liquidity. As well as
Inmarsat could experience an upgrade should its gross debt to Ebitda decrease "substantially and materially" below 3.5 times. At present, Moody's forecasts debt staying between 3.5 times and 4.0 times in 2019 and 2020. Equally, should the multiple exceed 4.0 times "materially and persistently" a downgrade could be in order.
Shares in Inmarsat were 4.8% higher at
