Maxar Technologies Inc. Assigned 'BB-' Issuer Credit Rating On Company Restructuring; Outlook Negative

  • Maxar Technology Ltd. moved its country of incorporation to the U.S. from Canada through an internal restructuring. Maxar Technologies Inc. is the new parent.
  • The company also recently announced that one of its imagery satellites has failed on orbit, likely resulting in $70 million less revenue per year.
  • We assigned a 'BB-' issuer credit rating to Maxar Technologies Inc., in line with the rating previously assigned to Maxar Technologies Ltd., which we have withdrawn.
  • At the same time, we affirmed our 'BB-' issue-level rating on the $1.15 billion revolver, $250 million term loan A1, $250 million term loan A2, and $2 billion term loan B, which were transferred to Maxar Technologies Inc. The '3' recovery rating is unchanged.
  • We also raised our issue-level rating on the $100 million revolver ("operating facility") now at MDA Systems Holdings Ltd. to 'BB+' from 'BB-' and revised the recovery rating to '1' from '3'.
  • The negative outlook reflects that while we expect credit maxametrics to improve, the satellite failure will likely make it more difficult for the company to improve earnings. It also reflects that this and other operational difficulties could weaken the company's competitive position. We expect debt to EBITDA to be between 5.6x-6.0x in 2018 and 4.6x-5.0x in 2019.
NEW YORK (S&P Global Ratings) Jan. 10, 2019—S&P Global Ratings today took the 
rating actions listed above. Maxar's recently finalized U.S. domestication 
could help the company win more work with the U.S. government. In 2016, Maxar 
began a corporate reorganization that included a "U.S. Access Plan" to gain a 
strong presence in the U.S. market and pursue a wider range of U.S. government 
programs. Part of that plan was moving its country of incorporation to the 
U.S. from Canada, which it finalized on Jan. 1, 2019, to make it easier to win 
classified U.S. government contracts. Maxar will now report its financial 
results in U.S. GAAP, making financial results more comparable to those of 
other U.S. aerospace and defense companies. The company effected the move by 
creating a new U.S.-based entity, Maxar Technologies Inc., and merging the 
existing company with that entity. Maxar Technologies Inc. is now the borrower 
for most its secured credit facilities. Canadian entity MDA Systems Holdings 
Ltd. is the borrower of the $100 million operating facility. Maxar believes 
the reorganization will help the company win more business with the U.S. 
government, and leading up to the domestication, Maxar extended its largest 
contract--EnhancedView with the U.S. National Reconnaissance Office--through 
2023. We view that as a positive early sign, and expect the reorganization to 
go smoothly.

The negative outlook on Maxar reflects our expectation that the recent loss of 
the Worldview-4 satellite will make it more difficult for the company to 
increase earnings in 2019. While we expect growth in other business segments 
to partially offset the weaker GEO communications satellite segment, which we 
expect to decline in 2019 and then stabilize in 2020, we are less certain of 
how significant the growth will be. We assume Maxar will successfully 
refinance its term loan A1 due October 2020; however, weaker-than-expected 
earnings and cash flows could make this difficult. We expect the company's S&P 
adjusted debt-to-EBITDA metric to be 5.6x-6.0x in 2018, elevated by the $155 
million write-off associated with the WorldView-4 satellite, declining to 
4.6x-5.0x in 2019.

We could lower our rating on Maxar if the company's debt to EBITDA remains 
above 5x in 2019 and appears likely to stay high, if the company has trouble 
refinancing its term loan A1 due October 2020, or if we determine that recent 
operational challenges have hurt the company's competitive position. This 
could occur if Maxar is unable to recoup any losses from the WorldView-4 
failure, the company struggles to win new business due to the failure, or 
other segments don't grow as we expect. This could also occur if debt leverage 
increases due to weaker-than-expected cash from operations, higher capital 
expenditures resulting from operational issues, or higher-than-planned 
required investment in the Legion constellation, or if the GEO business 
continues to be a drain on earnings or cash flow.

We could revise our outlook to stable if Maxar's debt to EBITDA drops below 5x 
in 2019 and we expect it to remain at that level. This could occur if Maxar's 
revenues grow as expected and the company continues to deliver on existing 
contracts while winning new business. It could also occur if Maxar 
successfully transitions its GEO business, either by restoring adequate 
profitability and cash generation or selling that portion of the business and 
using the proceeds to pay down debt.