Loral Space & Communications has suspended plans to spin off its satellite manufacturing subsidiary Space Systems Loral and is now engaging in an alternative transaction. While a sale of SS/L is widely thought to be the most likely outcome,…
Loral Space & Communications has suspended plans to spin off its satellite manufacturing subsidiary Space Systems Loral and is now engaging in an alternative transaction. While a sale of SS/L is widely thought to be the most likely outcome, SatelliteFinance understands that it is just one of the options being considered.
Loral CEO Michael Targoff told investors on 1 March that “another strategic alternative has now arisen” that justified the company to suspend plans that were two-years in the making to spin off the unit.
Targoff declined to say whether the group was in talks with a buyer, and the company declined to elaborate on its spinoff alternative.
Although a sale of SS/L is the most likely option, “there could be other possibilities, but the main result would be separating SS/L from Loral,” said a source with knowledge of the situation.
In early 2010, Loral announced that it was seeking to list 19.9% of SS/L via an IPO and mandated Credit Suisse and JP Morgan to manage the process. However, SatelliteFinance learnt at the time that the two banks were also sounding out potential buyers over a full sale.
Banking sources had suggested that strategic players rather than sponsors would be the most likely bidders with Orbital Sciences, Lockheed Martin and Northrop Grumman all mooted.
In his Q4 results call, Targoff said: “We understand that certain investors have been disappointed that it has taken us as long as it has to separate SS/L from Loral. But we believe it would be imprudent if we did not take the necessary time to full explore this other potentially more attractive opportunity. It is our goal to achieve the maximum return for shareholders.”
He said the company anticipates knowing whether its spin-off alternative plan will succeed by June.
According to Targoff, the decision to pursue this alternative opportunity was “totally independent” from Canadian satellite operator Telesat’s recently announced plans to return to a recapitalisation that paves the way for a special dividend.
Telesat’s original plans to refinance its senior secured credit facilities is what prompted Loral, which owns a majority stake in the Canadian operator, to look at spinning off SS/L in the first place for tax reasons. The spinoff talks continued even after Telesat called off the recapitalisation in November 2011, only to announce plans in February this year for a smaller refinancing.
Dan Goldberg, CEO of Telesat, said the Canadian operator’s new recapitalisation, which will see it incur incremental senior debt of up to C$530m, is small enough to not be subject to the tax and corporate restructuring issues that were part of its decision to abandon the first recapitalisation attempt. The new refinancing, along with cash on hand, will see Telesat pay a special dividend of up to C$705m.
Loral posted combined segment revenues and adjusted EBITDA for the year to 31 December 2011 of US$1.926bn and US$750m, respectively, compared with US$1.962bn and US$732m, respectively, for the corresponding period the year before.
SS/L’s 2011 revenue was US$1.108bn, compared with US$1.165bn for the year before. Its adjusted EBITDA for 2011 was US$138m, compared with US$143m for 2010.
