Telesat Corp (TSAT) Risk Analysis

The market price of the Telesat Public Shares is subject to significant fluctuations in response to, among other factors: -         variations in Telesat's operating results and market conditions specific to companies in the satellite services industry;-         changes in financial estimates or recommendations by securities analysts;-         announcements of innovations or new products or services by Telesat or its competitors;-         the emergence of new competitors;-         operating and market price performance of other companies that investors deem comparable;-         changes in Telesat's board or management;-         sales or purchases of the Telesat Public Shares by insiders;-         commencement of, or involvement in, litigation;-         changes in governmental regulations; and -         general economic conditions and slow or negative growth of related markets. In addition, if the market for stocks in Telesat's industry experiences a loss of investor confidence, the market price of the Telesat Public Shares could decline for reasons unrelated to Telesat's business, financial condition or results of operations. The market price of the Telesat Public Shares may be adversely affected by market conditions affecting the stock markets in general. Market conditions may result in volatility in the level of, and fluctuations in, market prices of stocks generally and, in turn, result in sales (including sales following the exchange of Telesat Partnership Units for Telesat Corporation Shares) of substantial amounts of the Telesat Public Shares in the market that may cause the market price of the Telesat Public Shares to fall dramatically. A weak global economy or other circumstances, such as changes in tariffs and trade, could also contribute to extreme volatility of the markets, which may also have an adverse effect on the market price of the Telesat Public Shares. In addition, if any of the foregoing occurs, it could not only cause the price of the Telesat Public Shares to fall but also may expose Telesat to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to the board of directors and management.

Telesat's governing documents contain special rights of each of MHR and PSP Investments to veto or participate in certain activities of Telesat. Such rights include, without limitation, the ability of each of MHR and PSP Investments to veto certain proposed changes to be taken by Telesat, including making changes to its respective organizational documents, the declaration and payment of non-pro rata dividends and certain tax or accounting elections. These documents also provide, among other things, for MHR and PSP Investments to each designate three directors to Telesat's board of directors. See the sections of this annual report entitled "Composition of the Telesat Corporation Board and Committees" and "Related Party Transactions - Investor Rights Agreements" for additional information on the negotiated rights of MHR and PSP Investments. The interests of either or both of MHR and PSP Investments may diverge from those of other Telesat shareholders, and each may exercise its respective voting and other rights in a manner adverse to the interests of such other holders.

Both MHR and PSP Investments, and their affiliates, maintain significant voting interests in Telesat. The voting interests of each of MHR and PSP Investments, along with their governance rights, provide MHR and PSP with substantial control over Telesat. As a result, MHR and PSP Investments will have the ability to influence many matters affecting Telesat and actions may be taken that other shareholders may not view as beneficial or align with their interests. Additionally, the market price of the Telesat Public Shares could be adversely effected due to the significant control exercised by MHR and PSP Investments. Such control may also discourage transactions involving an offer for control of Telesat in which an investor may otherwise receive a premium for its Telesat Public Shares over the then-current market price, or discourage competing proposals if a going private transaction or change of control transaction is proposed by either MHR or PSP Investments.

The Telesat Articles provide for the renunciation of certain enumerated business opportunities by Telesat and its subsidiaries. This includes an acknowledgement by Telesat that (i) its directors, (ii) its shareholders that employ, retain or are otherwise associated with, or designate or nominate, directors, and/or (iii) their affiliates, may become aware, from time to time, of certain business opportunities (such as investment opportunities) and may direct such opportunities to other businesses in which they have invested, with no obligation to make Telesat aware of any business opportunities that have been renounced by Telesat. Further, such businesses, including entities in which MHR and PSP Investments invest, may choose to compete with Telesat for renounced business opportunities and for business opportunities that have been separately discovered by the directors and their related parties, possibly causing these opportunities to not be available to Telesat or causing them to be more expensive for Telesat to pursue. These potential conflicts of interest could adversely impact Telesat's business or prospects if attractive business opportunities are procured by such parties for their own benefit rather than for the benefit of Telesat.

The assets listed on Telesat's consolidated balance sheet as at December 31, 2023 include goodwill with a carrying value of approximately $2,446.6 million and other intangible assets with a carrying value of approximately $692.8 million. Goodwill and other intangible assets are qualitatively assessed for indicators of impairment. If the qualitative assessment concludes an indication of impairment, a quantitative impairment test of goodwill and other intangible assets (such as orbital locations) with indefinite useful lives is undertaken. Telesat measures for the quantitative impairment test using a projected discounted cash flow method and confirms the assessment using other valuation methods. If the asset's carrying value is more than its recoverable amount, the difference is recorded as a reduction in the amount of the asset on the balance sheet and an impairment charge in the statement of income. Quantitative testing for impairment requires significant judgment by management to determine the assumptions used in the impairment analysis. Any changes in the assumptions used could have a material impact on the impairment analysis and result in an impairment charge. Telesat cannot predict whether an event that triggers impairment will occur, when it will occur or how it will affect the reported asset values. A substantial amount of Telesat's goodwill and intangible asset value is supported by the planned Telesat Lightspeed constellation. If it were determined that the Telesat Lightspeed constellation program was unlikely to proceed, it is likely that Telesat's goodwill and intangible assets would be deemed to be impaired. If Telesat's goodwill or other intangible assets are deemed to be impaired in whole or in part, it could be required to reduce or write-off such assets, which could have a material adverse effect on its financial condition.

Any determination to pay dividends in the future will be at the discretion of Telesat's board of directors, as described in Exhibit 2.6 under "Dividend Entitlements," and will depend upon results of operations, financial condition, contractual restrictions, including agreements governing its debt and equity financing and any future indebtedness it may incur, restrictions imposed by applicable law and other factors Telesat's board of directors deems relevant. The current expectation is that in the near term Telesat will not pay dividends, but will retain its cash on hand for the purpose of funding the Lightspeed constellation, funding other capital investments and/or paying down debt. Realization of a gain on the Telesat Public Shares will depend on the appreciation of the price of Telesat Public Shares, which may never occur. See "Dividend Policy."

A material amount of Telesat's asset value is derived from Telesat's spectrum authorizations. Valuations of spectrum in other frequency bands historically have been volatile, and Telesat cannot predict any future change in the value of Telesat's spectrum and other assets. In addition, to the extent that the International Telecommunication Union ("ITU") or any governmental authority takes action that makes additional spectrum available or promotes the more flexible use or greater availability of existing satellite or terrestrial spectrum allocations, for example, by means of spectrum leasing or new spectrum sales, the availability of such additional spectrum could reduce the value of Telesat's spectrum authorizations and, as a result, the value of Telesat's business.

The agreements governing Telesat's debt, including the indentures governing its Senior Secured Notes, the 2026 Senior Secured Notes and the Senior Notes and the Credit Agreement, impose operating and financial restrictions on its activities. For example, the Revolving Credit Facility requires it to comply with a first lien net leverage ratio of 5.75:1.00, tested quarterly when its Revolving Credit Facility is drawn by more than 35% of the Credit Facility amount. These indentures, the Credit Agreement and future debt agreements may also limit or prohibit its ability to, among other things: -         incur additional debt and issue disqualified stock and preferred shares;-         create liens;-         pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments;-         create or permit to exist specified restrictions on its ability to receive distributions from restricted subsidiaries;-         make certain investments;-         issue guarantees;-         issue or sell the capital stock of restricted subsidiaries;-         sell or exchange assets;-         modify or cancel Telesat's satellite insurance;-         enter into certain transactions with affiliates; and -         effect mergers, consolidations, amalgamations and transfers of all or substantially all assets. These restrictions on Telesat's ability to operate its business could seriously harm its business by, among other things, limiting its ability to take advantage of financing, merger and acquisition and other corporate opportunities. Various risks, uncertainties and events beyond Telesat's control could affect its ability to comply with these covenants and maintain this financial ratio. Failure to comply with any of the covenants in its existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity for the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, Telesat might not have sufficient funds or other resources to satisfy all of its obligations, including its obligations under the Senior Secured Notes, the 2026 Senior Secured Notes or the Senior Notes.

Implementation of Telesat's business strategy requires a substantial outlay of capital. As it pursues its business strategies and seeks to respond to developments in its business and opportunities and trends in its industry, Telesat's actual capital expenditures may differ from expected capital expenditures. There can be no assurance that Telesat will be able to satisfy capital requirements in the future. In addition, if one of its satellites fails unexpectedly, there is no assurance of insurance recovery or the timing thereof and Telesat may need to exhaust or significantly draw upon its Amended Revolving Credit Facility or obtain additional financing to replace the satellite. If Telesat determines it needs to obtain additional funds through external financing and is unable to do so, it may be prevented from fully implementing its business strategy. The availability and cost to Telesat of external financing depends on a number of factors, including its credit rating and financial performance and general market conditions. Telesat's ability to obtain financing generally may be influenced by the supply and demand characteristics of the telecommunications sector in general and of the satellite services sector in particular. Declines in Telesat revenues and the challenging business conditions faced by Telesat customers are among the other factors that may adversely affect Telesat's credit, access to the capital markets and ability to refinance its existing debt. Other factors that could negatively impact Telesat's credit, access to the capital markets and ability to refinance its existing debt include the amount of debt in its current capital structure and the expected increase in its debt, activities associated with strategic initiatives, the health of its satellites, the success or failure of its planned launches, its expected future cash flows and the capital expenditures required to execute its business strategy. The overall impact on its financial condition of any transaction that it pursues may be negative or may be negatively perceived by the financial markets and rating agencies and may result in adverse rating agency actions with respect to Telesat's credit rating and access to the capital markets. Long-term disruptions in the capital or credit markets as a result of uncertainty, inflation, rising interest rates or recession, changing or increased regulation or failures of significant financial institutions could adversely affect its access to capital. A credit rating downgrade or deterioration in Telesat's financial performance or general market conditions could limit its ability to obtain financing or could result in any such financing being available only at greater cost or on more restrictive terms than might otherwise be available and, in either case, could result in Telesat deferring or reducing capital expenditures, including on new or replacement satellites, or being unable to refinance its debt.

The agreements governing Telesat's debt permit it to designate one or more of its restricted subsidiaries as unrestricted subsidiaries, subject to certain conditions. Certain of Telesat's subsidiaries have been designated as unrestricted subsidiaries pursuant to those debt agreements. As a result, the covenants described above are not applicable to such subsidiaries. Telesat is developing, and intends to fund, construct and operate, its Lightspeed constellation, in one or more of its unrestricted subsidiaries. If the Lightspeed constellation program proceeds, these unrestricted subsidiaries are expected to incur substantial additional debt which would be secured by substantially all of the assets related to the Lightspeed constellation.

Telesat's ability to make scheduled payments on or refinance its debt obligations depends on its financial condition and operating performance, which are subject to prevailing economic, industry and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond its control. Telesat may be unable to maintain a level of cash flow from operating activities sufficient to permit it to pay the principal, premium, if any, and interest on its indebtedness, including its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes. If Telesat's cash flow and capital resources are insufficient to fund its debt service obligations, it could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness, including its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes. Future issuances of equity would dilute the ownership position of shareholders of Telesat and unitholders of Telesat Partnership. Telesat may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow it to meet its scheduled debt service obligations. The Credit Agreement, the indentures governing the Senior Secured Notes, the 2026 Senior Secured Notes and the Senior Notes restrict its ability to dispose of assets and use the proceeds from those dispositions and may also restrict its ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. Telesat may not be able to consummate those dispositions or obtain proceeds in an amount sufficient to meet any debt service obligations then due. Telesat's inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its indebtedness on commercially reasonable terms or at all, would materially and adversely affect its financial position and results of operations and its ability to satisfy its obligations under its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes. If Telesat cannot make scheduled payments on its debt, it will be in default and holders of its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes could declare all outstanding principal and interest to be due and payable, the lenders under the Senior Secured Credit Facilities could terminate their commitments to loan money and declare all principal and interest to be due and payable, its secured lenders (including the lenders under the Senior Secured Credit Facilities, the Senior Secured Notes and the 2026 Senior Secured Notes) could foreclose against the assets securing their borrowings and Telesat could be forced into bankruptcy or liquidation (as and to the extent applicable to Telesat).

Telesat may raise additional equity capital to fund Telesat Lightspeed, including through the issuance of Telesat Corporation Shares or other equity interests of Telesat or any one or more of its subsidiaries. Telesat is currently in discussions with third parties regarding the sale of equity in its unrestricted subsidiaries that will own, operate and commercialize the Telesat Lightspeed constellation. Any such future issuance by Telesat and/or its subsidiaries could result in potential substantial ownership dilution to the shareholders of Telesat, which is not reflected in the beneficial ownership calculations presented in this annual report. In addition, newly issued securities may include liquidation or other preferences that could adversely affect the rights of the shareholders of Telesat and/or holders of Telesat Partnership Units. Furthermore, the future issuance of additional securities, whether equity or debt, by Telesat and/or its subsidiaries, or the perception that these issuances may occur, may cause the market price of the Telesat Public Shares to decline. This could also impair the ability of Telesat and/or its subsidiaries to raise additional capital through the sale of securities. There is no assurance that Telesat and/or its subsidiaries will be able to obtain additional funding on acceptable terms or at all. It is not certain what effect, if any, that future sales or issuances of Telesat Corporation Shares or other equity interests of Telesat or any one or more of its subsidiaries will have on the trading price of Telesat Public Shares. So long as the number of Class B Variable Voting Shares and Class B Units exceeds the number of Class A Shares, Class C Shares, Class A Units and Class C Units on matters submitted to a vote of the holders of equity in Telesat Corporation (but not with respect to Second Tabulation matters): (1) the issuance of additional Class B Variable Voting Shares would have the effect of diluting the voting power of the then existing holders of the Class B Variable Voting Shares and Class B Units, but not the voting power of the then existing holders of the Class A Shares, Class C Shares, Class A Units and Class C Units, and (2) the issuance of additional Class A Shares would have the effect of diluting the voting power of the then existing holders of the Class A Shares, Class C Shares, Class A Units and Class C Units, but not the voting power of the then existing holders of the Class B Variable Voting Shares and Class B Units. See Exhibit 2.6 "Meetings of Shareholders and Voting Rights - Golden Share Mechanic", and "- Risks Relating to the Ownership of Telesat Public Shares and Telesat Partnership Units - The vote of the holders of Class B Variable Voting Shares voting with respect to a particular matter may be diluted by the Golden Share".

Telesat's ability to make payments on, or repay or refinance its debt, including its Senior Secured Notes, the 2026 Senior Secured Notes and Senior Notes, and to fund planned capital expenditures will depend largely upon its future operating performance. Telesat's future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. In addition, Telesat's ability to borrow funds in the future to make payments on its debt will depend on the satisfaction of the covenants in the Senior Secured Credit Facilities, in the indentures governing its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes and other agreements it may enter into in the future. In addition, if its Revolving Credit Facility is drawn by more than 35% of the Credit Facility amount, it will be required to comply with a first lien net leverage ratio of 5.75:1.00, tested quarterly, and failure to comply will result in an event of default under the Revolving Credit Facility. These indentures and the Credit Agreement contain limitations on its ability to incur additional debt. Telesat cannot assure you that its business will generate sufficient cash flow from operations or that future borrowings will be available to it under the Senior Secured Credit Facilities or from other sources in an amount sufficient to enable it to pay its debt, including its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes, or to fund its other liquidity needs. As of December 31, 2023, it had US$200.0 million of unused available revolving capacity under its Senior Secured Credit Facilities (not giving effect to $0.2 million of outstanding letters of credit). In addition, Telesat's ability to raise additional capital to refinance its debt or to fund its operations is dependent on capital market conditions. If Telesat's cash flows and capital resources are insufficient to service its indebtedness, it may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance its indebtedness, including its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes. These alternative measures may not be successful and may not permit it to meet its scheduled debt service obligations. Telesat's ability to restructure or refinance its debt will depend on the condition of the capital markets and its financial condition at such time. Any refinancing of its debt could be at higher interest rates and may require it to comply with more onerous covenants, which could further restrict its business operations. In addition, the terms of existing or future debt agreements, including the Senior Secured Credit Facilities, the indentures governing its Senior Secured Notes, its 2026 Senior Secured Notes and its Senior Notes, may restrict Telesat from adopting some of these alternatives. In the absence of such operating results and resources, it could face substantial liquidity problems and might be required to dispose of material assets or operations to meet its debt service and other obligations. It may not be able to consummate those dispositions for fair market value or at all. Furthermore, any proceeds that Telesat could realize from any such dispositions may not be adequate to meet its debt service obligations then due.

If for any taxable year 75% or more of a foreign corporation's gross income is passive income, or at least 50% of its assets are held for the production of, or produce, passive income, the foreign corporation is classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Under the PFIC look-through rules, for the purposes of determining whether a corporation should be classified as a PFIC, the corporation will be treated as if it owns a proportionate share of the assets of, and earns a proportionate share of the income earned by, any subsidiary corporation if the corporation owns at least twenty-five percent (25%) (by value) of the stock of such subsidiary. Furthermore, for purposes of these rules stock owned by a partnership is treated as owned proportionately by its partners. During 2021 after the Transaction and during a portion of 2022, Telesat owned only approximately twenty-four percent (24%) of the Telesat Partnership Units. Telesat's ownership interest in Telesat Partnership increased during 2022 and subsequently. As of December 31, 2022 and December 31, 2023, respectively, Telesat's ownership interest in Telesat Partnership was 25.7% and 27.2%. While not free from doubt, Telesat believes that, by virtue of additional value associated with its interest as general partner of Telesat Partnership, Telesat owned at least twenty-five percent (25%) of the total value of Telesat Partnership (and indirectly in the wholly owned corporate subsidiaries of Telesat Partnership) during 2021 and 2022. In addition, Telesat owned more than 25% of the total value of Telesat Partnership (and indirectly in the wholly owned corporate subsidiaries of Telesat Partnership) during 2023. Based on the foregoing, Telesat believes it was not a PFIC for any of its 2021-2023 taxable years, taking into account the income and assets of the wholly owned corporate subsidiaries of Telesat Partnership. Telesat can provide no assurance that the IRS will not successfully challenge this position upon any audit of a U.S. holder. The determination as to whether Telesat should be classified as a PFIC for 2024 and years thereafter will be a factual determination that must be made annually at the close of each taxable year and will be based upon the composition of Telesat's income and assets (including entities in which Telesat holds at least a 25% interest), which may be subject to change. Because PFIC status is determined annually based on Telesat's income and assets for the entire taxable year, it is not possible to determine whether Telesat will be characterized as a PFIC for 2024 or any other future year until after the close of that year. Subject to the foregoing, while Telesat intends to manage its business so as to avoid PFIC status to the extent possible and consistent with its other business goals, Telesat cannot predict whether its business plans will allow it to avoid PFIC status. In addition, because the market price of the Telesat Public Shares has fluctuated and is likely to fluctuate in the future and because that market price may affect the determination of whether Telesat is a PFIC, there can be no assurance that Telesat will not be a PFIC for any taxable year. U.S. holders of Telesat Public Shares could suffer adverse tax consequences as a result of the classification of Telesat as a PFIC, including having gains realized on the sale of the shares treated as ordinary income, rather than capital gain, the loss of the preferential rate applicable to dividends received on the Telesat Public Shares, having interest charges apply to distributions by Telesat and the proceeds of the sale of Telesat Public Shares and subjection to additional reporting requirements. Telesat will use reasonable efforts to provide to U.S. holders the information needed to report income and gain pursuant to a "qualified electing fund" election, which election would alleviate some of the adverse tax consequences of PFIC status.

The implementation of Telesat's planned Lightspeed constellation will require a substantial outlay of capital, and Telesat may not be able to raise sufficient capital to successfully develop and commercialize the project. See "- Telesat's business is capital intensive and it may not be able to raise adequate capital to finance its business strategies, or it may be able to do so only on terms that significantly restrict its ability to operate its business." While Telesat has entered into an agreement with MacDonald Dettwiler and Associates ("MDA") to be the prime manufacturer for the Lightspeed constellation, we do not currently have in place definitive agreements with our financing sources that would allow us to complete construction of the constellation. While Telesat has announced that it expects to receive funding from Canadian federal and provincial governments in the combined amount of up to approximately US$2 billion, these investments are subject to a number of conditions including the entering into of further, definitive agreements, which, for various reasons, may not occur. If unable to raise sufficient capital, Telesat will not be able to build and deploy its Lightspeed constellation which could have a material adverse effect on Telesat's operations, business prospects and financial condition.

Telesat has exposure to many different financial institutions and counterparties (including those under its credit, financing and insurance arrangements), including brokers and dealers, commercial banks, investment banks, insurance providers and other institutions and industry participants. Telesat is exposed to risk, including credit risk resulting from many of the transactions it executes in connection with its hedging activities, in the event that any of its lenders or counterparties, including its insurance providers, are unable to honor their commitments or otherwise default under an agreement with it.

Borrowings under the Senior Secured Credit Facilities will be at variable rates of interest and will expose Telesat to interest rate risk. Assuming all revolving loans are fully drawn, each quarter percentage point change in interest rates would result in a $5.1 million change in interest expense on indebtedness under the Senior Secured Credit Facilities for the year ended December 31, 2023. Telesat has entered into, and in the future Telesat may enter into, interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, Telesat may not maintain interest rate swaps with respect to all or any of its variable rate indebtedness, and any swaps Telesat enters into may not fully mitigate Telesat's interest rate risk, may prove disadvantageous or may create additional risks.

Telesat's ability to access capital markets is important to its ability to operate Telesat's business. Increased scrutiny of the satellite industry and the impact of regulation, as well as changes in Telesat's financial performance and unfavorable conditions in the capital markets could result in credit agencies reexamining Telesat's credit ratings. Telesat's Senior Secured Notes, Telesat's 2026 Senior Secured Notes and Telesat's Senior Notes have a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency's judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. A downgrade in Telesat's credit ratings could restrict or discontinue Telesat's ability to access capital markets at attractive rates and increase Telesat's borrowing costs. There can be no assurance that any rating assigned to any of Telesat's debt securities will remain in effect for any given period of time or that any such ratings will not be lowered, suspended or withdrawn entirely by a rating agency if, in that rating agency's judgment, circumstances so warrant. In 2022, Telesat's credit rating was lowered by the credit ratings agencies, and it is possible that a further lowering of its credit rating may occur in the future. The credit rating agencies have also previously denoted Telesat as being in "selective default" as a result of having repurchased a portion its debt and they may do so again in the future. Absent an improvement in our ratings, the lowering of Telesat's credit rating, and any future lowering of Telesat's credit ratings, may make it more difficult or more expensive for Telesat to obtain additional debt financing or refinance its current debt. Moreover, real or anticipated changes in Telesat's credit ratings will generally affect the market value of Telesat's Senior Secured Notes, Telesat's 2026 Senior Secured Notes and Telesat's Senior Notes. In 2022, the market value of Telesat's Senior Secured Notes, Telesat's 2026 Senior Secured Notes and Telesat's Senior Notes significantly decreased. Such decreases, and any future decreases in market value that may occur, may make it more difficult or more expensive for Telesat to obtain additional debt financing or refinance its current debt.

Telesat has a significant amount of debt. As at December 31, 2023, it had total debt of $3,199.2 million and up to US$200.0 million of unused available revolving capacity under the Senior Secured Credit Facilities (not giving effect to $0.2 million of outstanding letters of credit). Telesat may incur additional debt in the future. The terms of Telesat's Senior Secured Credit Facilities, the indenture governing its Senior Secured Notes, the indenture governing its 2026 Senior Secured Notes and the indenture governing its Senior Notes will allow it to incur substantial amounts of additional debt, subject to certain limitations. Its borrowings, current and future, will require interest payments and need to be repaid or refinanced, could require it to divert funds identified for other purposes to debt service and could create additional cash demands or impair its liquidity position and add financial risk for it. Diverting funds identified for other purposes for debt service may adversely affect Telesat's business and growth prospects. If it cannot generate sufficient cash flow from operations to service its debt, it may need to refinance its debt at higher rates, dispose of assets, reduce or delay expenditures or issue equity to obtain necessary funds. Telesat does not know whether it would be able to take any of these actions on a timely basis, on terms satisfactory to it or at all. Telesat's substantial amount of debt may have important consequences. For example, it may: make it more difficult for it to satisfy its obligations under the Senior Secured Credit Facilities, the Senior Secured Notes the 2026 Senior Secured Notes and the Senior Notes; increase its vulnerability to general adverse economic and industry conditions; require it to dedicate a substantial portion of its cash flow from operations to make interest and principal payments on its debt, thereby limiting the availability of its cash flow to fund future capital expenditures, working capital and other general corporate requirements; limit its flexibility in planning for, or reacting to, changes in its business and in the industries that it services; place it at a competitive disadvantage compared with competitors that have less debt; and limit its ability to borrow additional funds, even when necessary to maintain adequate liquidity. In addition to its debt service obligations, its operations require material expenditures on a continuing basis. Telesat's ability to make scheduled debt payments, to refinance its obligations with respect to its indebtedness and to fund capital and non-capital expenditures necessary to maintain the condition of its operating assets and properties, as well as its capacity to fund the growth of its business, depends on its financial and operating performance. General economic conditions and financial, business and other factors affect operations and future performance. Many of these factors are beyond Telesat's control. Telesat may not be able to generate sufficient cash flows to pay the interest on its debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt.

On August 11, 2023, Telesat announced that it expects to receive an up to approximately US$2 billion investment from Canadian federal and provincial governments to support Telesat Lightspeed. See "Business - Our GEO Business and Our LEO Opportunity - Overview of Telesat Lightspeed". A binding obligation with respect to these investments will only be created upon execution of definitive documentation that will contain the terms including representations, warranties, covenants, indemnities, defaults, and other terms and conditions (including fees and expenses, increased costs, tax (including customary gross-up and indemnity provisions for any non-resident withholding tax) and other provisions) as these lenders may reasonably require, which are usual and customary for transactions of this nature. Moreover, these investments are in all respects subject to, among other things, ongoing due diligence, negotiation of satisfactory binding legal documentation and required governmental approvals. Consequently, due to the foregoing and other factors, some of which are outside Telesat's control, the parties may be unable to reach an agreement with respect to definitive documentation. Furthermore, we expect that there will be conditions to the funding of these investments, and the satisfaction of those conditions may not be entirely within Telesat's control. The definitive documentation with respect to these investments is expected to contain various affirmative and negative covenants, some of which may restrict Telesat's ability to conduct its business and which Telesat Canada and Telesat may find onerous. While Telesat will attempt to negotiate definitive documentation for these investments, there is no guarantee it will be successful in doing so. In connection with the investments from the Canadian federal and provincial governments to support Telesat Lightspeed, Telesat expects to, among other things, grant warrants to purchase a number of shares of the unrestricted subsidiary that will develop and commercialize the Lightspeed constellation. Any exercise of such warrants would result in dilution of the interest of the shareholders of Telesat in the Telesat Lightspeed business.