Two credit-rating agencies on Feb. 2 said they are reviewing satellite-fleet operator Telesat Canada's debt for a possible downgrade following the decision by Telesat's corporate parent to recapitalize the company and sell a minority stake in a stock-market offering.

The pronouncements by Standard & Poor's and Dominion Bond Rating Service came a day after BCE Inc. of Montreal announced that it expects to raise at least 1 billion Canadian dollars ($875 million) in an initial public offering (IPO) of Telesat stock in the second half of 2006.

The move is one of several planned operations at BCE designed to reduce its debt and raise capital to concentrate on its core wireless-telecommunications business.

In announcing the Telesat decision to financial analysts, BCE Chief Executive Officer Michael J. Sabia said the Telesat stock sale would not violate foreign-ownership restrictions that require a continuing minimum Telesat ownership by Canadian entities. He did not say how big a stake in Telesat would be sold.

BCE Chief Financial Officer Siim Vanaselja said the Telesat recapitalization and IPO would be conducted after Telesat transfers to BCE its minority stake in Mobile Satellite Ventures (MSV) of Reston, Va., and Ottawa, which operates a mobile satellite system over North America.

MSV recently raised substantial new capital and has ordered three large satellites from Boeing for L-band mobile data and voice transmissions in North America.

"There are some overlapping legal structures in the ownership of MSV by Telesat, and that asset will be moved entirely to BCE before we take Telesat public," Vanaselja said.

U.S. investors have recently become interested in MSV and other mobile satellite services ventures that plan to offer higher-speed voice and data services with the aid of ground-based signal repeaters, called ancillary terrestrial components, that have been approved by U.S. regulators. The regulatory decision gives MSV a nationwide U.S. license for mobile services without the need to buy the spectrum at an auction.

Asked whether its MSV stake was worth more than $700 million, Sabia said that figure is excessive. But MSV, he said, "has turned out to be an interesting asset."

Sabia said the complicated shareholder structure of MSV means Telesat will not be seeking to sell its stake anytime soon. But once the shareholder structure is simplified, such a sale could be considered.

"There are a lot of developments under way with respect to that asset," Sabia said of MSV. "To the extent that those move forward, and ... change the nature of MSV and make it more than it is today -- basically a spectrum holding -- to something that has a more operational feel to it, that may give us an opportunity to assess things again."

Sabia said increasing Telesat Canada's debt and proceeding with an IPO makes sense because of the satellite operator's financial health and what he said are historically high stock-market valuations of Telesat's competitors.

Telesat, which ranked sixth in Space News' ranking of satellite-fleet operators ranked by 2004 revenue, boosted its sales by 31 percent in 2005, to 475 million Canadian dollars, BCE reported Feb. 1.

Operating income for the year was up 11.3 percent, to 157 million Canadian dollars.

Sabia said Telesat's fleet-occupancy rate is about 84 percent, "superior to any of its competitors on a global basis." Backlog is equivalent to 6.8 years' revenue.

The recapitalization preceding the IPO will increase Telesat debt to about 3.5 times its earnings before interest, taxes, depreciation and amortization, or EBITDA, which Sabia said is in line with other global satellite operators' debt levels.

One of Telesat's principal customers is Bell ExpressVu, a wholly owned BCE subsidiary. Sabia said the commercial arrangements between Telesat and ExpressVu have long been arms-length arrangements and would continue after the IPO.

"There's so much change under way in the [satellite services] sector, we think providing Telesat with a currency, with a presence in the marketplace that is not just 100 percent BCE, is something that is positive [for] Telesat's strategic flexibility in what is a rapidly changing marketplace," Sabia said.

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