Space Systems/Loral Future Hinges on Telesat Decisions

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PARIS — Loral Space and Communications on Nov. 5 said it likely will spin off or sell all of its Space Systems/Loral (SS/L) satellite manufacturing subsidiary in the event that satellite fleet operator Telesat, in which Loral has a 64 percent economic interest, decides to pursue a stock offering or a strategic transaction.

In a filing with the U.S. Securities and Exchange Commission, Loral said such a transaction, which Telesat’s board has asked Telesat to investigate, would trigger a decision by Loral “to separate Loral’s non-Telesat assets so that any transaction involving Loral’s interest in Telesat could be structured in the form of a transaction at the parent-company level.”

“[I]n the event of any such transaction, Loral would, prior to the transaction, likely spin off or sell its interest in SS/L, (or its remaining interest if there has first been an SS/L initial public offering) and otherwise separate from Loral the remaining non-Telesat assets,” New York-based Loral said.

Ottawa-based Telesat, which since a July change in Canadian telecommunications regulations has been freed of its obligation to remain Canadian-owned, is investigating a stock offering or other strategic transaction.

Loral and Telesat said there is no guarantee that any such deal will occur.

Separately, Loral has been trying to sell 19.9 percent of Space Systems/Loral through an initial stock offering that Loral hoped would yield $100 million for use by the satellite manufacturer to meet its business requirements. But the offer has not found sufficient market enthusiasm to move forward.

For the nine months ending Sept. 30, Palo Alto, Calif.-based Space Systems/Loral reported revenue of $837 million, up 12.2 percent from the same period a year ago. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 12.6 percent of revenue, compared with 7.3 percent a year earlier.

The company’s backlog of satellite orders stood at $1.73 billion at Sept. 30, up 6.2 percent from a year ago. This figure does not include the ABS-2 telecommunications satellite that Space Systems/Loral booked after the close of the financial period.

Space Systems/Loral specializes in large, commercial telecommunications satellites. Unlike its principal U.S. and European competitors, it does relatively little business with government customers.

The company has built several of the largest, most sophisticated commercial satellites launched in recent years, although in at least two cases the ICO-G1 satellite owned by DBSD North America, and the TerreStar-1 and TerreStar-2 satellites owned by TerreStar Networks of Reston, Va. the satellites’ owners have filed for Chapter 11 reorganization under the U.S. Bankruptcy Code. DBSD and TerreStar are mobile satellite services operators.

TerreStar’s Oct. 19 Chapter 11 filing, like the DBSD bankruptcy case in 2009, has left Space Systems/Loral with a customer whose willingness or ability to pay its past-due bills has been thrown into doubt. TerreStar owes Loral about $35 million for the TerreStar-1 and TerreStar-2 spacecraft, the latter of which is still under construction.

In its SEC filing, Loral said that while TerreStar has not yet indicated whether it would use its bankruptcy filing to reject the Loral contract, Loral is confident that either TerreStar or the company that ends up with ownership of the spacecraft will be forced to come to terms with Loral.

Loral is under contract to TerreStar to troubleshoot the in-orbit TerreStar-1, a job that any owner of the satellite will need to have done, Loral said. For TerreStar-2, Loral said it believes it can resell to another customer either the entire satellite, or components of it. Loral said it had already stopped work on TerreStar-2 before the TerreStar Chapter 11 filing because of unpaid bills.