Monday January 11, 5:06 pm Eastern Time
S&P rates Loral Space & Communications
(Press release provided by Standard & Poor's)
NEW YORK, Jan 11 - Standard & Poor's today assigned its single-'B' rating to Loral Space & Communications Ltd.'s senior note issue due 2006.
At the same time, Standard & Poor's affirmed its double-'B'-minus corporate credit rating and single-'B' preferred stock rating on the company.
The rating on the senior note issue reflects structural subordination to substantial obligations at consolidated and unconsolidated subsidiaries.
Loral's corporate credit rating reflects commitments to major high-risk development projects, offset by respectable positions in niche markets and ready access to debt and equity markets.
Furthermore, management has a long record of substantial, successful acquisitions, carrying potential for additional material debt issuance. Consequently, business and financial risks are expected to remain elevated over the next few years.
The New York City-based company's operating units consist of Space Systems/Loral Inc., Skynet, and Orion Network Systems Inc. (single-'B'-plus/Negative/--).
Space Systems/Loral, a major manufacturer of commercial space satellites, is expected to enjoy strong demand.
Improved technological capabilities are expanding use of telecommunication and direct broadcast satellites.
Satellite supply is limited to a few established manufacturers, with extremely high barriers to market entry. Skynet, acquired in March 1997, leases satellite transponder capacity to clients and is in the midst of a major expansion program subject to launch risks.
Orion, acquired in March 1998, provides niche market private network communications and high speed data transmission.
One communications satellite is operating, and two more are scheduled to be launched this year. In December 1997, Loral purchased a 49% voting interest in Satelites Mexicanos S.A. de C.V. (single-'B'-plus/Stable/--), a provider of satellite services in Mexico.
Globalstar L.P. (single-'B'/Watch Negative/--) is a 42%-owned development-stage company that is building and will operate a worldwide, low-earth orbit satellite-based telecommunications system.
With the September 1998 launch failure of a rocket carrying 12 communications satellites, which were largely insured, management now targets service startup for the end of 1999, a three-month delay.
Outlays are estimated to rise by some $240 million to cover revenue shortfalls in 1999 and added hardware needs, and additional financing of about $600 million will be necessary. Operations remain subject to regulatory, technical, and launch risks.
Also, market demand remains to be demonstrated. Loral has substantial partners committed to this project, for which funding could be as high as $3.9 billion, mitigating financial and market risks.
Development stage operations should begin generating substantial cash flow over the next two years. Standard & Poor's expects Loral's earnings before interest, taxes, depreciation, and amortization coverage of interest expense to be in the 2.5 times area toward the end of that time frame.
OUTLOOK: NEGATIVE
Current ratings assume that Loral's very subpar financial protection measures will demonstrate progressive, material improvement as operations mature over the near term.
Failure to demonstrate improvement, or material additional cost overruns or service delays at Globalstar, could lower Loral's credit quality, Standard & Poor's said. |
