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Iridium Satellite LLC -- Moody's upgrades Iridium's Corporate Family Rating to Ba3, outlook stable

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Rating Action: Moody's upgrades Iridium's Corporate Family Rating to Ba3, outlook stableGlobal Credit Research - 03 Feb 2021New York, February 03, 2021 -- Moody's Investors Service ("Moody's") upgraded Iridium Satellite LLC's ("Iridium" or "the Company") Corporate Family Rating (CFR) and senior secured credit facility to Ba3, from B1. The Probability of Default Rating (PDR) was upgraded to Ba3-PD, from B1-PD. The outlook is changed to stable, from positive.The upgrade of the CFR reflects better than expected performance through the pandemic and governance considerations, specifically the Company's financial policy to use most free cash flow to aggressively delever until it reaches its company defined leverage target of 2.5x-3.5x net leverage (management's calculation). We project Moody's adjusted leverage to fall below 4x and FCF/debt to rise above 15% over the next 12-18 months.Upgrades:..Issuer: Iridium Satellite LLC.... Corporate Family Rating, Upgraded to Ba3 from B1.... Probability of Default Rating, Upgraded to Ba3-PD from B1-PD....Senior Secured Bank Credit Facility, Upgraded to Ba3 (LGD4) from B1 (LGD4)Outlook Actions:..Issuer: Iridium Satellite LLC....Outlook, Changed To Stable From PositiveRATINGS RATIONALEIridium's Ba3 rating is constrained by its small scale and moderate leverage. The Company's revenues were approximately $576 million (through the Last Twelve Months ended September 2020, LTM), lower than higher rated peers. While the company has only one major direct competitor (Inmarsat) within its L-Band satellite spectrum, the size of its market is relatively small and Iridium has less market share. Additionally, we estimate leverage was approximately 5.0x (Moody's adjusted, as of 9/30/20 LTM), above higher rated peers, but projected to fall below 4x over the next 12-18 months with strong free cash flow used to delever. The rating is supported by its niche but established market position with high barriers to entry in the mobile satellite market, supported by steady, rising, and predictable market demand for mobile and fixed voice and data satellite services, especially in the burgeoning Internet of Things (IoT) market. Iridium's ownership of L-band spectrum and a newly deployed, $3 billion next-generation low earth orbit (LEO) satellite constellation (Iridium NEXT, 66 satellite mesh network) are very high barriers to entry. The company has a strong business model, generating high EBITDA margins over 60% that will rise with operating leverage. A large mix (approximately 80%) of revenues are contractual and recurring, and generated from an installed and steady base of more than 1.4 million communication devices (subscribers) used in niche and critical military and commercial applications. Services are offered across many verticals including aviation and maritime, and over remote land masses, open oceans, airways, and polar regions (not served by terrestrial wireless, and much higher speed satellite network operators). It has a large and diverse set of commercial customers, consisting of over 450 partners including service providers, value-added resellers and manufacturers. Iridium also has a large fixed-price contract with the US government (over 17-18% of recurring revenue) and a fixed price contract with Aireon (7-8% of recurring revenue) which hosts the world's largest Air Navigation Service Providers (or "ANSP's") on Iridium's satellite network.Iridium's liquidity is very good (SGL-1), supported by positive operating cash flows over the next 12 months, an undrawn revolver, and covenant-lite loans.Moody's rates the senior secured term loan B and revolving facility Ba3 (LGD4), equal to the CFR. The Ba3 rating reflects the probability of default of the company, as reflected in the Ba3-PD Probability of Default Rating, an average expected family recovery rate of 50% at default given the covenant lite structure, and the term loan's ranking in the capital structure relative to a modest amount of non-debt claims.The stable outlook reflects our expectation that revenues will grow to over $600 million over the next 12-18 months, generating EBITDA of $380 million on margins of over 60% (Moody's adjusted). Free cash flows will rise to near $250 million, with capex near 8% of revenue. We expect leverage (Moody's adjusted debt/EBITDA) to fall below 4x over the next 12-18 months. We project free cash flow to debt (Moody's adjusted) to rise above mid-teen percent over the next 12-18 months. Our outlook assumes the Company maintains very good liquidity.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSWe could consider a positive rating action if scale increased materially, the company maintained its very good liquidity and market position, and sustained debt/EBITDA (Moody's adjusted) below 3x and free cash flow to debt (Moody's adjusted) above 15%. We would consider a negative rating action if free cash flow to debt (Moody's adjusted) was sustained below 7.5%, or debt / EBITDA (Moody's adjusted) was sustained above 4.5x, or liquidity, scale, or market position deteriorated.The principal methodology used in these ratings was Communications Infrastructure Industry published in September 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1076924. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.With headquarters in McLean, Virginia, Iridium Communications Inc. is a provider of mission critical and highly-reliable voice and data communications services to commercial and government customers. Coverage is global, connecting people, organizations and assets over land and sea in maritime, aviation, and other vertical markets using its L-band satellite network. The Company generated $576 million in revenue in the LTM period ended September 2020.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jason Cuomo Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lenny J. Ajzenman Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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