(Bloomberg) -- Aurelius Capital Management, the hedge fund that contends Intelsat SA is in default on its bonds, is now accusing the struggling satellite operator of using some of the same assets to secure two separate pieces of debt.
Intelsat pledged assets of its Intelsat Jackson Holdings subsidiary as collateral for the $1.25 billion of senior secured notes due 2024 that the company raised in March, Aurelius's managing director David Tiomkin wrote in a letter dated July 7 to Intelsat's chief financial officer, Jacques Kerrest. The same assets were pledged in May to help secure $815.3 million of senior unsecured notes due 2022, Tiomkin added. A copy of the letter was obtained by Bloomberg News.
Use of the assets is "highly suspect under U.S. state laws dealing with fraudulent transfers," Tiomkin wrote. The subsidiary "had no obligation to provide those guarantees" and Intelsat used its control to "procure a benefit for itself," Tiomkin said in the letter.
Brian Schaffer, a spokesman for Aurelius at Prosek Partners, confirmed that the fund sent the letter but declined to elaborate. Dianne VanBeber, an Intelsat spokeswoman, said Aurelius “has made a series of baseless claims against our company, and the most recent letter is more of the same. No other creditors have joined in the letter or its false allegations.”
The accusation escalates disputes between the hedge fund and the Luxembourg-based Intelsat, which is struggling to restructure $14.85 billion of debt amid revenue pressure and a vast expansion of industry capacity. New York-based Aurelius said in May that the company breached a covenant and defaulted on the 7.25 percent bonds maturing in 2020 that Aurelius owns by taking on new debt to fund a $360 million dividend.
Tiomkin's letter concerns holdings of Intelsat Jackson, an entity founded to issue debt for the parent company. Those are used to guarantee a total of $6.85 billion of unsecured notes maturing in 2019, 2020, 2021 and 2023, Tiomkin wrote.
Intelsat's $2.2 billion of 7.25 percent senior unsecured notes maturing in October 2020 last traded at 69 cents on the dollar yesterday and have lost more than 18 cents this year, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
To contact the reporter on this story: Jodi Xu Klein in New York at jxu205@bloomberg.net. To contact the editors responsible for this story: Nabila Ahmed at nahmed54@bloomberg.net, Rick Green, Eric J. Weiner
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