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Telesat Canada -- Moody's downgrades Telesat's CFR to B2 and assigns a B1 rating to new secured notes; ratings remain on review for downgrade

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Rating Action: Moody's downgrades Telesat's CFR to B2 and assigns a B1 rating to new secured notes; ratings remain on review for downgradeGlobal Credit Research - 13 Apr 2021Approximately $3.5 billion of debt ratedToronto, April 13, 2021 -- Moody's Investors Service ("Moody's") downgraded Telesat Canada's ("Telesat") corporate family rating (CFR) to B2 from B1, probability of default rating to B2-PD from B1-PD, senior secured credit facilities and senior secured notes ratings to B1 from Ba3, and senior unsecured notes rating to Caa1 from B3. Moody's also assigned a B1 rating to the company's proposed $500 million senior secured notes due 2026, with Telesat LLC as a co-issuer. Telesat's ratings remain on review for downgrade, including the B1 rating on the proposed secured notes. The company's speculative grade liquidity rating was unchanged at SGL-2.Telesat intends to use the net proceeds from the new notes issuance to fund a portion of its planned low earth orbit (LEO) satellite constellation."The downgrade was prompted by the one turn increase in leverage (to 6.1x from 5.1x for 2020) as a result of the notes issuance" said Peter Adu, Moody's Vice President and Senior Analyst.The following ratings/assessments are affected by today's action:Ratings Downgraded:..Issuer: Telesat Canada.... Corporate Family Rating, Downgraded to B2 from B1; Remains Under Review for Downgrade.... Probability of Default Rating, Downgraded to B2-PD from B1-PD; Remains Under Review for Downgrade....Senior Secured Revolving Credit Facility, Downgraded to B1 (LGD3) from Ba3 (LGD3); Remains Under Review for Downgrade....Senior Secured Term Loan B5, Downgraded to B1 (LGD3) from Ba3 (LGD3); Remains Under Review for Downgrade....Senior Secured Global Notes, Downgraded to B1 (LGD3) from Ba3 (LGD3); Remains Under Review for Downgrade....Senior Unsecured Global Notes, Downgraded to Caa1 (LGD6) from B3 (LGD6); Remains Under Review for DowngradeNew Assignments:..Issuer: Telesat Canada....GTD Senior Secured Global Notes, Assigned B1 (LGD3); Placed Under Review for DowngradeRATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSTelesat's B2 CFR is constrained by: (1) Moody's expectation that consolidated leverage (adjusted Debt/EBITDA) will increase materially over the construction phase of its planned LEO satellite constellation (was 5.1x for 2020 but 6.1x pro forma for new notes issuance); (2) declining revenue and EBITDA profile in its existing business; (3) elevated business risk from evolving technology and an increasing supply of satellites; (4) small scale relative to fixed satellite services (FSS) peers; and (5) high customer concentration. The rating benefits from: (1) predictable revenue in the next 12 to 18 months, supported by its C$2.7 billion backlog; (2) good market position in the global FSS market; (3) strong margins relative to FSS peers; and (4) potential to monetize C-band spectrum in the US and Canada.The review for downgrade was prompted by the potential for material increase in leverage following the company's February 9, 2021 announcement [1] that it had selected Thales Alenia Space as the contractor for its planned LEO constellation of 298 satellites and integrated ground network that is expected to cost about $5 billion.The review will focus on Telesat's financing plans and liquidity through construction, execution risks of completing the LEO project on time and on budget, revenue and earnings potential once the constellation is operational, and future expectations for its current business, which has been in decline. Moody's expects to conclude the review when there is increased visibility on these factors.If the rest of the LEO constellation debt that Telesat raises is secured, it is likely that the existing secured debt rating will settle at the same level as the CFR that Moody's arrives at when the review concludes.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.Telesat Canada, headquartered in Ottawa, Canada and owned by Loral Space & Communications Inc. (Loral, 62.6% economic interest), Public Sector Pension Investment Board (36.7%) and management (0.7%), is a fixed satellite services company. The company's fleet consists of 15 geosynchronous (GEO) satellites, one phase 1 LEO satellite and the Canadian payload on ViaSat-1. Revenue for the fiscal year ended December 31, 2020 was C$820 million. Telesat is on track to merge with Loral, a public company listed on the Nasdaq Global Select Market, to form a new Canadian public company in the second half of 2021.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.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.REFERENCES/CITATIONS[1] Form 6K (SEC) dated February 9, 2021.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. 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