Investment Fund Would Control Loral Under New Plan
Loral Space and Communications will be controlled by an investment fund specializing in corporate salvage operations if it is successful in winning its creditors’ approval of a new Chapter 11 bankruptcy reorganization plan, according to Loral officials.
New York-based Loral filed a new reorganization proposal to the New York bankruptcy court March 22. On March 28 it submitted a detailed statement of the company’s status and prospects.
The bankruptcy court now must approve the Loral documents and then submit Loral’s plans to a vote of its creditors. If approval is given, Loral could emerge from bankruptcy in June as a largely debt-free satellite builder and satellite-fleet operator.
Under the current plan filed with the court, MHR Management LLC would be Loral’s controlling shareholder when the company makes its exit from bankruptcy. MHR — the initials stand for founder Mark H. Rachesky — specializes in investing in distressed companies. Loral said the company remains hopeful that it will obtain a listing on the Nasdaq stock exchange, but also acknowledged the possibility that it could be restricted to an over-the-counter stock listing, which would sharply reduce share liquidity.
Loral now faces two immediate tasks, industry officials said. It must persuade prospective customers that their interests will be protected despite the ongoing cloud of Chapter 11 bankruptcy protection, and it must convince its creditors that the proposed reorganization is the best course of action.
To prospective customers, Loral says it is proceeding with work on satellites under development at its Palo Alto, Calif.-based manufacturing subsidiary, Space Systems/Loral.
Loral said the WildBlue-1 consumer broadband satellite, originally scheduled for completion in mid-2004, is now completed. A renegotiated contract between Loral and WildBlue Communications Inc. of Denver has given Loral a collateral interest in the satellite and other WildBlue assets to assure WildBlue will make its payments on the Loral vendor financing it received, Loral said in its bankruptcy court filing.
The iPSTAR broadband satellite owned by Shin Satellite of Thailand is expected to be completed by the end of April.
Loral also has concluded an agreement with ChinaSat Communications Group of Beijing on the ChinaSat 8 satellite, which has been in storage at Space Systems/Loral for years because of a U.S. government refusal to permit its export to China.
Loral said it has recently struck an agreement with ChinaSat that calls for the Chinese company to return the use of two C-band transponders on Loral’s Telstar 10 satellite to Loral Skynet, Loral’s satellite services company. In exchange, ChinaSat will receive Ku-band capacity on the Telstar 10 and Telstar-18 satellites, “at a significant annual savings to Loral Skynet.”
As part of its disclosure statement, Loral conducted a study of the company’s value if it emerges from Chapter 11 by June. A separate assessment was made of what Loral’s assets would fetch at auction in the event the company is liquidated under Chapter 11 or Chapter 7 of the U.S. Bankruptcy Code.
A Loral that emerges from bankruptcy by June 30 will be worth between $632 million and $862 million, the company said in what it concedes is a somewhat speculative evaluation that assumes a growth in both its core businesses.
The alternative — liquidation — would result in a far lower value for debt holders. Unsecured creditors and Loral equity stockholders would receive nothing, Loral said.
An auction of Loral assets would start with the four in-orbit satellites Loral operates. One of the satellites, the Telstar 14/Estrela do Sul, is damaged, and Loral is awaiting full or partial payment of a $250 million insurance claim.
Loral said its liquidation-value assessment assumes that iPSTAR and WildBlue-1 satellites are launched. It also assumes that the Satmex 6 satellite — whose owner, Satmex of Mexico, has financial troubles nearly matching Loral’s — will be launched.
On the other hand, the liquidation-value assessment assumes that both ChinaSat 8 and Spainsat will not be launched. The Spainsat telecommunications satellite is under construction at Loral and is to be used by the Spanish Defense Ministry.
Asked about the Satmex 6- and Spainsat-related assumptions, Loral spokesman John McCarthy was unable to provide a response by press time April 1.