biz.yahoo.com
Reuters
Loral shareholders to fight reorganization plan
Thursday May 20, 5:51 pm ET
By Dane Hamilton
NEW YORK, May 20 (Reuters) - Out-of-the-money shareholders in bankrupt Loral Space & Communications (OTC BB:LRLSQ.OB - News) are taking their claims to court, saying they deserve more in the satellite company's restructuring plan
And if recent events at other bankrupt companies are any guide, they may succeed, even though Loral said May 10 that it plans to cancel its common and preferred stock as part of a reorganization plan it is pursuing. Shares dropped from 51 cents on May 11 to close at 28 cents Thursday in New York.
The looming battle over Loral comes amid what some experts say is rising shareholder activism in bankruptcy court, a venue where shareholders are typically wiped out in favor of senior lenders and bondholders.
Some, like Tony Christ, who holds some 400,000 shares in Loral, say the bankruptcy court has become a venue for vast wealth transfer to bondholders who often unfairly end up with much of the equity in a company when it emerges from bankruptcy. He argues that bondholders are disproportionately rewarded for the risks they take.
"These are predators living off the court system, effecting wealth transfers due to loopholes in the law," fumed Christ, a Falls Church, Virginia, investor who plans to argue the case for more Loral shareholder value at a bankruptcy court hearing in New York on Friday. "Logically, I'm right and I'm going to win this one."
While veteran bankruptcy experts give Christ low odds for success in the pursuit of value for Loral shareholders, some say a rising tide of shareholder activism could sway judges to reject company-sponsored reorganization plans that gives no benefit to shareholders.
"This could be a harbinger of more valuation battles to come," said William Derrough, a veteran restructuring banker for Jefferies & Co., who cited similar recent battles at bankrupt companies including Exide Technologies (NasdaqNM:XIDE - News), where a judge last January rejected its reorganization plan, saying its value was too low. A similar battle is brewing at Solutia (OTC BB:SOLUQ.OB - News), a bankrupt chemical company, he said.
"The courts and the U.S. trustees increasingly see that you can't necessarily trust the debtor (bankrupt company) to look after shareholders," said Derrough.
Perhaps the highest profile recent success story was for shareholders at Adelphia Communications Corp. (Other OTC:ADELQ.PK - News), who challenged the cable company's proposed reorganization plan that would give them no immediate value.
After other Adelphia creditors joined the fray, the company caved and put the company on the block, in effect letting the market determine its actual value -- and what shareholders may be able to recover post-bankruptcy.
Loral shareholder Christ plans to argue that bondholders will unfairly benefit from the company's pending reorganization plan because some bought debt while it was trading at 30 percent or less of par value, but will likely get value equivalent to 100 cents under the plan.
But others say that view ignores the risk that such "vulture" investors take when purchasing distressed debt in bankrupt companies.
"The argument has an emotional appeal to it," said John Bicks, an attorney with Sonnenshein Nath & Rosenthal, who represents some preferred Loral shareholders. "But at some level, it ignores the reality that people who buy distressed paper are taking some risk. For every one who buys at 30 and sells at 100, there are people who buy at 100 and sell at 30." |
