- The Washington Times - Tuesday, July 15, 2003

NEW YORK (AP) — Satellite maker Loral Space & Communications Ltd. filed for Chapter 11 bankruptcy protection yesterday and will sell its six North American satellites to Intelsat Ltd. for up to $1.1 billion.

The New York company said it will reorganize around its manufacturing operations and its remaining network of five satellites. Those satellites — three in space and two scheduled to launch within nine months — can serve markets in South America, Europe and Asia that Loral hopes will experience faster growth.

The company plans to use the proceeds from selling the North American satellites to pay off $959 million in secured bank debt. The deal could close within four to six months, pending approval by regulators and a bankruptcy court.

Analysts were not surprised by the bankruptcy, given the sluggish state of the satellite business and Loral’s $2.1 billion in overall long-term debt. Much of that comes from its investment in Globalstar Ltd., a satellite phone company that burned through $4 billion before filing for bankruptcy last year.

The satellite industry has been in its worst slump in 40 years because of the collapse of space-based communications companies such as Iridium LLC, Teledesic LLC and Globalstar.

Boeing Co., the world’s biggest maker of satellites, said yesterday that it will take a $1.1 billion charge because it overestimated demand for satellite launches.

Intelsat, which had been looking for ways to expand its North American presence and offer more video-transmission services, also agreed to order a new satellite from Loral. Bermuda-based Intelsat, a former intergovernmental organization that went private in 2001, will make a $100 million down payment when the sale of the six satellites closes.

Bernard L. Schwartz, Loral’s chairman and chief executive officer, said Loral reluctantly agreed to file for bankruptcy at the urging of Intelsat. With Loral under Chapter 11 protection, Mr. Schwartz said, it will be more difficult for any bondholder to block the sale.

“It’s a blow not to have been able to manage the reversal in the business world, that we were not able to manage that without hurting the stockholders,” Mr. Schwartz said in an interview. “I feel very concerned and saddened.”

An Intelsat spokeswoman did not immediately return a call seeking comment.

Loral makes satellites for broadcasters such as DirecTV and EchoStar and for commercial weather forecasting, and leases capacity on its network in space to broadcasters and communications providers.

But like the overall communications market, the company’s fortunes have slid in recent years. Loral lost $1.5 billion last year on $1.1 billion in sales. The company recently pulled off a 1-for-10 reverse stock split to avoid delisting from the New York Stock Exchange.

“It’s inevitable that there’s going to be some major changes and major transactions where the survivors take over the weaker players,” said Jimmy Schaeffler, senior analyst for the Carmel Group.

Jim Frownfelter, chief operating officer of Wilton, Conn.-based PanAmSat Corp., a rival of Intelsat and Loral, said his company hopes the developments yesterday will stabilize prices for the industry.

Loral said it has enough cash to continue normal operations, and will not seek debtor-in-possession financing, in which a company is funded through short-term loans that become first in line for repayment.

Mr. Schwartz plans to remain with the company, which he has led for 31 years.

“We have to start over again with some very significant assets, some significant resources,” Mr. Schwartz said. “I have every faith that we’ll be able to rebuild.”

Loral is the descendant of a conglomerate founded in 1948 by William Lorenz and Leon Alpert. The company was struggling with heavy losses when Mr. Schwartz took over in 1972 and made it profitable by focusing on military electronics.

Loral became a major defense contractor, growing through several acquisitions in the 1980s and 1990s.

In 1996, Mr. Schwartz sold all of Loral’s holdings except its satellite business to Lockheed Martin Corp. for $9 billion, creating Loral Space & Communications.

Even before the bankruptcy, Loral had its share of trouble.

Last year, the company paid a $14 million fine to settle a long investigation into accusations that it illegally transferred sensitive missile technology to the Chinese government after a rocket carrying a Loral satellite exploded in 1996. The probe itself sparked a dispute during the Clinton administration because Mr. Schwartz was a big Democratic donor.

Loral also paid $5.5 million in 1989 after admitting that it had paid a defense consultant to obtain confidential information about two military contracts.

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