Bankruptcy Court Schedules July 29 Hearing on Satmex

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PARIS — A U.S. bankruptcy court has scheduled a July 29 hearing to determine whether U.S. creditors of the Mexican satellite fleet operator Satmex can force that company into a Chapter 11 bankruptcy filing in the United States against its will. Satmex opposes that move and has argued that the U.S. court has no jurisdiction.

Satmex has filed for protection under Mexican law in a procedure similar to U.S. bankruptcy protection. However, Satmex’s U.S. creditors, in filings with the U.S. Bankruptcy Court of the Southern District of New York, contend that the Mexican procedure will make it less likely that their interests will be protected, and less likely that Satmex will be able to turn its finances around before collapsing.

How the New York bankruptcy court resolves this question also may determine whether a complicated agreement between Satmex and Loral Space and Communications of New York — Satmex’s supplier and major shareholder — is allowed to stand. The agreement, the companies say, will throw a lifeline to Satmex by allowing it to launch its large Satmex 6 satellite.

Several Satmex creditors urged the court July 14 not to accept the Loral-Satmex settlement, saying it includes too many undisclosed elements. In written statements to the court July 14, these creditors said Satmex has refused to provide key details of the deal to the creditors.

Citibank N.A. of New York, representing a group of Satmex creditors, said the Loral-Satmex settlement “is an insider deal” that needs to be fully disclosed before being accepted.

As presented to the bankruptcy court, the Loral-Satmex settlement contains numerous redacted sections that, according to Citibank, makes it “practically worthless in the evaluation process.”

Loral owns a large share of Satmex’s equity and is also a Satmex creditor, as well as being the company’s satellite supplier. Loral also has two of the five seats on Satmex’s board. The relationship of Loral to Satmex has raised suspicions among some of the Satmex creditors. A group called the Ad Hoc Noteholders Committees, in a July 14 filing to the bankruptcy court, says it suspects that Loral has crafted a deal that is not in Satmex creditors’ interests.

As far as can be determined from the sections of the settlement that were not redacted, Loral and Satmex have reached a settlement under which most of the two companies’ debts to each other are wiped out. The companies say the arrangement will permit the Satmex 6 satellite, which has been in storage at its French Guiana launch site for 21 months, to be recertified by its manufacturer — Loral — and made ready for a launch as soon as early 2006.

Satmex creditors and industry officials agree that the launch of Satmex 6 is critical to the long-term survivability of Satmex, whose two in-orbit satellites are aging.

Loral’s contract with Satmex to oversee the safe storage of Satmex 6 expired June 30.

The Loral-Satmex deal provides that Loral will ship Satmex 6 back to Loral’s Palo Alto, Calif., production plant to perform a recertification that has been made necessary because of the satellite’s long period of storage. Loral also will perform launch and post-launch services.

In return for these services, and for not pursuing its own claims against Satmex, Loral has secured Satmex’s agreement to drop its claims against Loral regarding a late-delivery penalty related to Satmex 6. In addition, Loral will continue to use three transponders on the orbiting Satmex 5 satellite.

Loral also will have exclusive use of four transponders on Satmex 6. This capacity — two C-band and two Ku-band transponders — will be used by Loral to re-enter the North American transponder-lease market.

As part of the billion-dollar sale of its North American satellite fleet to Intelsat Ltd. of Washington in March 2004, Loral agreed to a no-compete clause that keeps it out of the North American transponder-lease market until March 2006.

Satelites Mexicanos S.A. de C.V. was unable to launch Satmex 6 in 2003 because it could not finance the final launch-related payments, mainly the insurance premium. Under the Loral-Satmex agreement, Loral will pay a pro rata share of the insurance premium that corresponds to the four transponders it will use, according to Loral spokesman John McCarthy.

Satmex 6 carries 60 transponders and is expected to weigh about 5,700 kilograms at launch.

Satmex’s U.S. creditors urged the bankruptcy court May 26 to accept an involuntary Chapter 11 filing by Satmex. They said that once a U.S. Chapter 11 case begins, they are prepared to inject $55 million in cash into Satmex to pay the expenses needed for the Satmex 6 launch.

At the urging of the Mexican government, which is a minority Satmex shareholder, Satmex on July 7 said the U.S. court has no jurisdiction over Satmex.

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