Loral warns of possible Telesat legal battle, Xtar restructuring

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WASHINGTON — Loral Space and Communications wants to move ahead with a “strategic transaction” involving fleet operator Telesat that may spark a legal fight with Telesat’s other major shareholder, a Canadian pension fund.

The long-simmering Telesat conundrum is coming to a boil as Xtar — another fleet operator majority-owned by Loral —  falls further behind on lease payments to co-owner Hisdesat of Spain, and owes more than $70 million for capacity it’s struggling to sell.

In an annual report to the U.S. Securities and Exchange Commission filed March 15, New York-based Loral said it is trying to solidify future plans for the two satellite operators, but may face trouble with both.

 

Telesat Trials

Loral has for years sought unsuccessfully to sell Ottawa-based Telesat, an operator of 15 geostationary satellites that is also planning a low Earth orbit constellation of 120 small broadband satellites it has yet to fully finance. Complicating any sale is Telesat’s ownership structure with the Public Sector Pension Investment Board (PSP). Loral has 62.7 percent ownership of Telesat, but only 32.7 percent of its voting stock; PSP owns the rest.

PSP and Loral are at odds over an active strategic transaction of Telesat that Loral is pursuing — a situation compromised by the lopsided power structure the two companies have over Telesat.  

“Depending upon the outcome of the strategic initiatives that we are pursuing … we may assert certain claims against PSP for actions we believe violated our rights relating to the affairs of Telesat,” Loral wrote the SEC.

PSP similarly informed Loral that “it may have claims against us,” Loral wrote, though Loral said it is “not aware of the legal or factual basis for any such claims.”

Loral said it and PSP agreed to bury their hatchets until the prospective Telesat sale discussions are complete. The companies entered a “Tolling Agreement” to preserve their “rights to assert against one another legal claims relating to Telesat.”

 

Xtar Expenses

Loral owns 56 percent of Xtar, a commercial satellite operator that sells capacity exclusively to government customers using a satellite called Xtar-Eur and a bundle of leased transponders on Hisdesat’s Spainsat rebranded as Xtar-Lant. Hisdesat owns the other 44 percent of Xtar.

Loral told the SEC that Xtar “has not been successful in leasing a significant portion of its available capacity,” and as a result, is deferring payments to Loral, Telesat and Hisdesat, with its late Spainsat payments growing annually.

“Unless XTAR is able to generate a substantial increase in its revenues, these obligations will continue to accrue and grow, and, absent agreement to further defer all or some these obligations, XTAR may be unable to pay them when due, which ultimately could result in a restructuring of XTAR,” Loral wrote.

Xtar revenues have declined by 10 percent or more for the past three years. Loral no longer publishes Xtar’s revenue, having written a $13.2 million impairment charge in 2015 and reducing its investment in Xtar to zero.

Xtar has been renegotiating payment reductions to Hisdesat for its Spainsat lease, which obligates Xtar to pay up to $28 million annually for the life of the satellite, which is currently estimated to last until 2021. In January, Xtar negotiated lease payments down from $26 million to $10 million for the year. The operator similarly negotiated smaller payments the last two years.

Loral said Xtar will use most of its excess cash balances to making payments to Loral, Hisdesat and Telesat.