Loral's Plan to Leave Bankruptcy Advances
By BARNABY J. FEDER
Published: July 23, 2004
Reform and Reorganization
Loral Space and Communications said yesterday that representatives of its unsecured creditors had agreed to a reorganization plan that could clear the way for the company to emerge from bankruptcy before the end of the year.
Under the plan, Bernard L. Schwartz, 78, Loral's longtime chairman and chief executive, will remain at the helm of the company. Many analysts and consultants said that they had heard from unsecured creditors in the past that forcing Mr. Schwartz to step down was a high priority for them.
Unsecured suppliers and other trade creditors would have the option of receiving a discounted reimbursement immediately or full payment over several years.
Loral, which entered bankruptcy a year ago, said holders of unsecured bond and notes would own substantially all of its stock and would control its board under the plan. MHR Fund Management would become Loral's largest shareholder with 25 percent to 30 percent of its stock, according to Harvey Miller, managing director at Greenhill & Company, Loral's financial adviser.
The plan leaves no part of the reorganized company for current shareholders and is likely to be opposed by a group of them who argue that Loral understated its assets by as much as $878 million in its court filings.
Loral, based in New York, was driven into bankruptcy by a plunge in demand for new satellites, by bitter price wars among satellite operators who had far more capacity than they needed in orbit and by the burden of more than $2 billion in debt from its investment in Globalstar, a satellite voice communications venture that went bankrupt.
The bankruptcy filing came after Loral sought to raise more than $1 billion by selling its chief asset - a fleet of satellites providing communications services in the United States. The buyer, Intelsat, insisted that Loral first enter bankruptcy so that the asset sale would be court approved and secure from claims filed by Loral's creditors.
The Intelsat deal allowed Loral to fully repay all of its secured creditors. Many observers surmised that once the domestic fleet was sold to Intelsat, the reorganization would require other major parts of the company to be sold as well.
"He's pulled a rabbit out of the hat," said J. Armand Musey, an investment consultant for the sector, referring to Mr. Schwartz, the chief executive.
Mr. Schwartz was adamant from the outset that Loral's manufacturing unit and its remaining satellite services business - principally a fleet of four satellites serving overseas markets - could be viable without the satellites sold to Intelsat. He pledged that Loral would not need to take out new loans, as most reorganizing companies must do to meet cash needs during their time in Chapter 11.
Mr. Schwartz's position in the negotiations with the creditors was strengthened by improving market conditions, which were reflected this year in the high prices private investment groups paid to acquire satellite fleet owners like PanAmSat, Inmarsat and New Skies Satellites.
"This is another sign of recovery in the industry," said Timothy J. Logue, a space and telecommunications analyst at the Coudert Brothers law firm. |
