Satellite operator Telesat TSAT-T and Ottawa have agreed to terms of a $2.14-billion government loan to support the construction of Telesat’s low earth orbit satellites, a project that has faced years of delays following pandemic disruptions and challenges around finalizing funding.
The company said on Monday that, after months of negotiations, it had agreed to the loan with a 15-year maturity and an interest rate set at 4.75 percentage points above the Canadian Overnight Repo Rate Average. That measure, which is meant to track the Bank of Canada’s policy interest rate, is currently about 5 per cent.
This means Telesat will pay nearly double the Bank of Canada rate for the loan to finance its Lightspeed constellation. The government will also receive warrants, which entitles it to buy shares at a certain price over the term of the loan, for 10 per cent of the company’s common shares based on a US$3-billion equity valuation.
Christopher Quilty, co-head of space finance research firm Quilty Space Inc., said the terms broadly reflect a “higher risk, higher yield endeavour,” and are not unexpected for a project that requires substantial upfront capital long before earning returns.
“One notable aspect of this agreement is the term of 15 years, which is somewhat unprecedented. In an area as volatile as telecom, tech and telecom, 15 years is three lifetimes. For the government to make that long of a commitment certainly gives Telesat a lot of manoeuvering room,” Mr. Quilty said.
While that term might have been a concession on the part of the government, so likely were the warrants on Telesat’s part, he said, given that it is fairly unusual for the government to take corporate equity.
In a press release Monday, Telesat’s president and chief executive officer Dan Goldberg said the terms will allow the company to shave about US$750-million in borrowing costs off the original price tag of about US$5.5-billion.
The federal investment provides the remainder of the necessary funding for Lightspeed’s first 156 satellites. The company aims to start launching its satellites in the summer of 2026, and to offer broadband internet service via the constellation by the end of 2027.
The lower interest costs come on top of US$2-billion in capital cost savings that the Telesat has attributed to switching to a new manufacturer last summer. Last August, the company’s stock jumped 50 per cent on news that it had replaced European aerospace giant Thales Alenia Space with Canadian space company MDA Ltd. as its key supplier.
That investor enthusiasm has waned, and the company’s shares have since returned to the same price range they have been in since mid-2022, when funding was still uncertain.
The terms of the federal funding are dependent on completion of due diligence and the finalizing of legal contracts.
Telesat’s satellites, which will be located 1,000 kilometres above the Earth’s surface, will provide service to enterprise and government customers. Because the satellite orbits are closer to the earth than the previous generation of geostationary satellites, they offer faster and more reliable service.
In its fourth-quarter and full-year results, announced March 28, Mr. Goldberg told analysts the company expects to increase its work force by 50 per cent in 2024 – hiring an additional 240 employees – as work on Lightspeed ramps up.
The company reported a 7-per-cent drop in revenue for the 2023 financial year compared with 2022, which it attributed to a continuing decline in satellite television subscriptions and increased competition from SpaceX’s Starlink. That company has started to move into the enterprise space in addition to servicing residential consumers with its LEO constellation.
Mr. Goldberg said some of Telesat’s geostationary enterprise customers had switched to Starlink, but was confident that the company could win them back with their promise of a more affordable product down the line.
Irene Galea