Loral Space & Communications Ltd. moved a step closer to emerging from bankruptcy when the U.S. Bankruptcy Court for the Southern District of New York approved, June 1, the company’s disclosure statement with respect to its proposed plan of reorganization.
Judge Robert Drain ruled that, with certain clarifications, Loral’s disclosure statement provided creditor with enough information to make a decision on whether to approve Loral’s reorganization plan.
“The judge’s ruling yesterday was a positive step forward in the process for us,” Loral spokeswoman Jeanette Clonan told Satellite News. “It keeps us on track for the confirmation hearing on July 13 and the emergence from bankruptcy shortly thereafter.”
Keeping Loral Intact
Loral’s reorganization plan reflects an agreement between the company, the creditors’ committee and an ad hoc committee of Space Systems/Loral trade creditors. The plan, as outlined in the disclosure statement, calls for the reorganized business that basically mirrors the existing corporate structure. A holding company dubbed New Loral will emerge with two wholly-owned subsidiaries–New Skynet, which will focus on satellite services and New SS/L, which will focus on satellite manufacturing.
According to the plan, New SS/L will emerge debt-free and continue its current activities, including completion of all satellites under construction or on order, and will actively pursue new satellite manufacturing contracts. New Skynet will continue to provide transponder leasing, network and professional services to current and prospective customers. The parent company will emerge as a public company under current management and will seek listing on a major stock exchange.
With regard to paying creditors, the plan calls for the holders of allowed claims against SS/L and Loral Spacecom to be paid in full in cash, including interest from the petition date to the effective date of the plan. Loral Orion‘s unsecured creditors will receive approximately 80 percent of New Loral common stock and their pro rata share of $200 million of preferred stock issued by New Skynet. These creditors also will be offered the right to subscribe to purchase their pro-rate share of $120 million in new senior secured noted of New Skynet. Loral bondholders and certain other unsecured creditors will receive approximately 20 percent of the common stock of New Loral.
“For Skynet, it is going to give them more flexibility for them to become a player in the satellite market,” Stephen Blum, president of Tellus Venture Associates, told Satellite News. “This is to give Skynet the ability to shift around some assets and refocus the business so it can better compete in the market.”
Another benefit from the emergence from bankruptcy will be Loral’s ability to price its offerings at a level that is on par with what the market will bear.
“The other thing it does, and this applies to both SS/L and Loral Skynet, is it gives their customers a degree of confidence that the companies are going to be able to fulfill its commitments,” Blum said. “This in turn is going to allow both companies bring their prices up. If you are a satellite operator and you are trying to sell someone a three year contract, but your prospect is not convinced you are going to be there three years from now because you are in bankruptcy, you are going to have to negotiate on terms. You are not going to have the bargaining ability that a company not in bankruptcy is going to have.”
One potential roadblock to coming out of bankruptcy could be the company’s existing common and preferred shareholders. According to the reorganization plan, all existing common and preferred stock will be canceled and no distribution will be made to the holders of such stock. No objections to the disclosure statement were voiced at the June 1 hearing, but that does not preclude shareholders from voicing their objection to the plan at the July 13 confirmation hearing.
One way for Loral to avoid that potential roadblock, if it were to materialize, would be for the company to offer some kind of settlement to its current common and preferred shareholders in exchange for them not objecting to the plan. Clonan would not comment on whether Loral would pursue such an option.
Blum said he has not heard any serious rumbling of a play by existing shareholders to contest the disclosure statement.
A New Satellite Contract?
Another potential bit of good news for Loral could come in the form of a new satellite contract.
The Wall Street Journal reported May 31 that XM Satellite Radio awarded the contract for its fifth satellite to Loral. According to the news item, the $186 million satellite would be used as a ground spare to the current fleet of four.
Loral spokesman John McCarthy declined comment on the report and a spokesman from XM satellite radio did not return a call seeking comment. Subsequent news reports confirmed that Boeing did not win the contract for the fifth XM satellite.
XM’s existing satellites were built by Boeing. The first two, “Rock” and “Roll,” were part of a batch of six Boeing 702 series satellites that experienced in-orbit solar array problems that reduced the life expectancy of the spacecraft. Boeing has built a pair of replacement satellites for XM, with the first placed in orbit in February and the second scheduled for launch in 2006.
If Loral is awarded the contract, it will be the fourth satellite contract for the company this year, suggesting the satellite industry is confident that Loral will successfully emerge from bankruptcy, Blum noted.
–Gregory Twachtman
