Thursday January 14, 1:05 pm Eastern Time
Moody's rates Loral senior notes B1
(Press release provided by Moody's)
NEW YORK, Jan 14 (Reuters) - Moody's assigns a B1 rating to the $350 million Senior Notes due 2006 of Loral Space & Communications, Ltd. ('Loral'), with a senior implied rating of Ba3.
The outlook is stable. Moody's also upgrades the ratings on the $445 million 11.125% Senior Notes due 2007 and the $484 million (face value) 12.5% Senior Discount Notes of Orion Network Systems to B1 from B2, and downgrades the $745 million of 6% convertible preferred stock of Loral to ''b3'' from ''b1.''
The ratings reflect the current high cash flow leverage of Loral, the uncertain timing of cash flow growth to improve leverage multiples, and the significant funding requirements of Loral's unconsolidated affiliates (primarily Globalstar).
Positively, the ratings recognize the value of the satellite assets that Loral has assembled, the stable cash flows from Loral's satellite manufacturing subsidiary, Loral's breadth of strategic relationships with international aerospace companies, as well as the strong management team under the stewardship of Bernard Schwartz.
The Loral Senior Notes are unsecured obligations that are structurally subordinated to subsidiary debt that includes outstandings under a $850 million secured credit facility.
The Orion Senior Notes are obligations of a wholly-owned subsidiary, but are non-recourse to Loral. The Orion operations are managed as an integral part of Loral's fixed satellite services business.
Thus even though Loral does not guarantee the Orion bonds, Moody's expects Loral to support these obligations. The 6% convertible preferred stock is downgraded to ''b3'' based upon its subordinated position relative to these other obligations.
This preferred is convertible into Loral common stock at $20 per share, and Moody's expects this conversion to occur in 2000. Total debt at Loral, excluding the preferred stock, is expected to total $1.9 billion at the end of 1999. This represents 9 times expected 1999 EBITDA. Debt has grown from $435 million at the end of 1997 due primarily to the acquisition of Orion in March 1998, but also due to investments in unconsolidated subsidiaries such as Globalstar.
Loral's cash flow is relatively weak at this point but is expected to grow rapidly as Loral puts more satellites into orbit for its Skynet and Orion units, more than doubling their collective transponder capacity in 1999.
Other satellite operators, notably PanAmSat, are also increasing transponder capacity and many of the regions covered by Loral's satellite service subsidiaries are currently experiencing economic difficulties. The substantial additional capacity combined with regional economic uncertainty could dampen demand for Loral's satellite services.
But should Loral's additional capacity become utilized as planned, cash flow should grow smartly and leverage could drop to below 5 times by the end of 2000.
Moody's does not expect absolute debt levels to subside in the near term. Since its inception in its current incarnation in April 1996, Loral has assembled a strong suite of satellite assets from manufacturing to services to orbital slots for future satellites.
Founded on the satellite manufacturing business of Space Systems/Loral, Loral has expanded its holdings into satellite services with the acquisitions of Skynet, Orion, and SatMex.
This collection of assets is well positioned to benefit from the continuing commercialization of space due to its strong management team, led by Bernard Schwartz, as well as the breadth of its relationships with international aerospace and communications companies such as Alcatel, Daimler-Benz Aerospace, and Qualcomm.
This combination of assets, management and corporate relationships lends comfort to our confidence in the company's ability to achieve its business plan. Loral Space & Communications is a holding company which owns Space Systems/Loral (SS/L), Skynet and Orion, and is the largest equity owner of Globalstar (42%). SS/L, formerly a partnership among major European space systems manufacturers (Aerospatiale, Alcatel, Finmeccanica, and Daimler-Benz) and Loral, is a leading satellite manufacturer.
Skynet is a leading U.S. satellite communications provider that Loral acquired from AT&T in 1997. Skynet leads the Loral Global Alliance of satellite service providers, which includes Skynet and Orion as well as joint ventures SatMex and Europe*Star, to cross-sell satellite capacity of Alliance members around the globe.
Loral's largest investment is in Globalstar, a global mobile satellite telephony project that expects to begin commercial service in September 1999. Other investments include SatMex, a satellite services provider based in Mexico but covering North and Central America, and Europe*Star, a joint venture with Alcatel to serve Europe, Asia and the Middle East.
Loral Space & Communications Ltd. , headquartered in New York, NY, is a leading, global satellite communications company with interests in the design, manufacture, and operation of satellite systems. |
