Loral Space and Communications Inc. announced Tuesday that it has entered into an agreement under which affiliates of MHR Fund Management LLC, Loral's largest shareholder, will purchase from Loral $300 million of convertible perpetual preferred stock. Loral plans to use the proceeds from this financing, together with its existing resources, to pursue both internal and external growth opportunities in the satellite communications industry, including strategic transactions or alliances.
Loral's agreement with MHR was negotiated through and unanimously recommended by a special committee of independent directors of Loral formed especially to advise the board on Loral's financing alternatives. The committee's legal and financial advisors were King and Spalding LLP and North Point Advisors, respectively. Loral's financial advisor in connection with this transaction was Morgan Stanley and Co. Inc. and MHR was advised by Deutsche Bank.
"This financing significantly expands Loral's equity base and greatly enhances Loral's ability to grow its business and take advantage of emerging opportunities in both the satellite services and satellite manufacturing markets," said Michael B. Targoff, Loral's chief executive officer. "An equity investment of this size is an extraordinary achievement for Loral and it strengthens our ability to play an enhanced role in the satellite industry. We are grateful for MHR's confidence and support and for the efforts of the special committee."
Since Loral's restructuring began in 2003, Loral has demonstrated consistent improvements in performance. Space Systems/Loral, its manufacturing subsidiary, has booked 14 new satellite construction contracts, more than any other commercial manufacturer over the same period. Its fixed satellite services business, Loral Skynet, has continued to show strong, steady results from its core leasing business. Loral is expanding its satellite fleet with the construction of Telstar 11N and is exploring additional capacity opportunities that would leverage its substantial current and historical customer relationships.
MHR will purchase $41 million and $259 million of new Loral Space and Communications Inc. 7 ½ percent Series A and Series B convertible perpetual preferred stock, respectively. Each such share of preferred stock is convertible into ten shares of Loral Space and Communications Inc. common stock or Class B common stock, each at an initial conversion price of $30.15 per share of common stock. The Series B common stock will be issued if Loral obtains shareholder approval for the creation of this new class of non-voting common stock, which Loral expects to seek at the next annual meeting of its stockholders. This conversion price reflects a premium of 12 percent to the closing price of Loral's shares of common stock on October 16, 2006.
Dividends on the preferred stock will be payable in kind through January 2011. Thereafter, subject to Loral satisfying certain financial requirements, dividends will be payable in cash or stock at Loral's option. Loral may cause the preferred stock to be converted into common stock after 5.5 years if the common stock is trading above 125 percent of the conversion price for a specified period.
Under the agreement, MHR will have the right to nominate one new member to Loral's board.
The transaction is subject to customary closing conditions, including approval under the Hart-Scott-Rodino Antitrust Improvement Act.
