Loral Takes Charge Against Xtar Investment

by

PRAGUE – Loral Space and Communications said the Xtar LLC commercial military satellite service provider in which it owns a majority share saw its revenue drop by 17 percent in 2014 and that there is no sign of a recovery in the near term.

New York-based Loral said it took a noncash charge of $18.7 million against its 2014 accounts after concluding that Herndon, Virginia-based Xtar’s value had been impaired.

Xtar owns one satellite, Xtar-Eur, at 29 degrees east longitude, which entered service in March 2005. The company is bound by contract to lease capacity on another X-band satellite, Spainsat at 30 degrees east, which is owned by Spain’s Hisdesat.

Hisdesat owns 44 percent of Xtar; Loral owns 56 percent.

In a March 2 filing with the U.S. Securities and Exchange Commission (SEC), Loral said it had conducted a fresh assessment of Xtar’s prospects and concluded that the company was entering a difficult period. If Xtar’s current losses continue, Loral said, “our investment may have to be written off completely.”

Loral said that for the 12 months ending Dec. 31, Xtar reported an operating loss of $11.5 million – compared to a loss of $7.7 million in 2013 – on revenue of $29.2 million, which was down 17.3 percent from the previous year.

Xtar has been struggling for some time under the weight of its bandwidth-lease obligations to Hisdesat, under which it must pay $25 million per year for 7.2 72-megahertz transponders. The required payment rises to $28 million this year and stays at that level until Spainsat is retired. The satellite entered service in 2006. Xtar in the past has renegotiated its past-due payments to Hisdesat.

Some of Xtar’s difficulties are specific to its satellites, which broadcast in X-band, and its contractual arrangements with Hisdesat. But others illustrate the plight in the past few years of several satellite fleet operators that do major business with the U.S. Defense Department.

The world’s three largest commercial fleet operators – SES of Luxembourg, Intelsat of Luxembourg and Washington, and Eutelsat of Paris – have all reported downturns in their government business, which is done mainly in Ku-band.

Since its late-2012 sale of satellite builder SSL of Palo Alto, California, to MDA Corp. of Canada, Loral has been little more than a holding company for a majority of the equity of satellite fleet operator Telesat of Canada.

Canadian pension fund PSP Investments, which owns a minority Telesat equity stake but has majority voting rights, and Loral have been trying for several years to sell Telesat, with valuations ranging from $5 billion to $7 billion.

Ottawa-based Telesat’s revenue in 2014 was  $837.4 million, down 3.5 percent mainly due to exchange-rate fluctuations between the U.S. and Canadian dollars, the company said. Telesat reported revenue for the year was 923 million Canadian dollars, up 3 percent from 2013.

Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was 81 percent of revenue, up from 79 percent in 2013, Telesat said. Backlog at Dec. 31 was 4.5 billion Canadian dollars. Telesat said it expects to sign a contract by June to replace the Telstar 18 over the Asia-Pacific, a satellite it shares with APT Satellite of Hong Kong.