Loral's reorganization plan undervalues company by $281-$463 million, examiner says

By Ellen Chang

Houston, March 14 - Loral Space & Communications Ltd.'s reorganization plan undervalues the company by $281 million to $463 million according to an investigation by Harrison Goldin, a court-appointed examiner.

In his report on how the company valued itself in its reorganization plan, Goldin said the company's process resulted in it undervaluing its assets.

Certain assumptions and the application or weighting of the various valuation approaches resulted in a "not insignificant understatement in value, amounting to the aggregate to $281-$463 million," Goldin said in his findings, filed Monday with the U.S. Bankruptcy Court for the Southern District of New York.

He put the value of the company at $931 million to $1.263 billion with a mid-point of $1.072 billion while Loral's disclosure statement for its plan of reorganization had a value of $650 million to $800 million with a mid-point of $725 million.

The most significant parts of the discrepancy are the valuation of the Space Systems/Loral business unit, the consideration of cash and working assets in the company's valuation conclusions and the selective application of valuation techniques, according to Goldin.

The examiner also said the value of Loral's significant non-operating assets such as intellectual property and real estate were not captured in the company's valuation included in its disclosure statement.

Goldin said his review was based on a straightforward application of standard valuation methodologies. He ignored "certain non-formulaic factors or other variables which the examiner could not verify independently," which the company indicated affected its valuation.

The examiner also said the company did not value its patent portfolio separately since it believed the patents were deployed in its operations and their value was reflected in the overall enterprise value.

In addition, Goldin acknowledged that "the values of the non-operating assets may be affected by present limitations on Loral's ability to realize on or monetize them."

He said he tested and evaluated the company's application of standard valuation methodologies and the impact of certain key assumptions and performed confirmatory due diligence. He reviewed Loral's advisors' work product and supporting documentation and analysis.

The request for an examiner from a group of stockholders was originally rejected by the bankruptcy court but overturned on appeal to the U.S. District Court.

The Loral Stockholders Protective Committee asked for the investigation because it believes the New York-based satellite company is worth far more than the company estimates in its paperwork.

Loral filed for bankruptcy on July 15, 2003. Its Chapter 11 case number is 03-41710.

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