/raid1/www/Hosts/bankrupt/TCRLA_Public/050513.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Friday, May 13, 2005, Vol. 6, Issue 94
Headlines
A R G E N T I N A
AHOLD: Weak Currency, Flat Sales Yield Lackluster 1Q05 Numbers
ALTOS SERVICIOS: Seeks Court Authority to Reorganize
ANDHAL'S SERVICIOS: Proceeds With Liquidation
BIOTECNIA S.R.L.: Court Approves Bankruptcy
CASA BRUSCO: Bankruptcy Process Initiated by Court Ruling
CENTRAL PUERTO: Reports Increased Net Profit in 1Q05
COVER SALUD: Gets Court Approval for Restructuring
DHV COMMUNICATIONS: Mandatory Report Deadlines Set
EDENOR: Posts ARS9.72 Mln Net Profit in 1Q05
FADEP S.R.L.: Court Schedules Informational Meeting
IANSON S.A.: Liquidates Assets to Pay Debts
LATINOAMERICANA TRADING: Court Orders Liquidation
METROVIAS: Cuts Net Losses Despite 1Q05 Utilization Decline
POLICRONIO: To Wind-Up Operations on Court Orders
QUINTINO BOCAYUVA: Court Favors Creditor's Bankruptcy Motion
SIETE ASES: Reorganization To End in Liquidation
TBA: Court Approves Concurso Motion
B E R M U D A
LORAL SPACE: Releases Quarterly Report of Financial Condition
SEA CONTAINERS: Cuts YoY Net Loss by 60% in 1Q05
B R A Z I L
BEC: Government Qualifies 4 Banks in Privatization Process
CSN: S&P Details Basis for Current Ratings, Stable Outlook
CSN: Targets CVRD's Stakes in Steel Companies
CSN: Bear Stearns Upgrades Stock Recommendation
USIMINAS: Reports 179% Net Income Growth in 1Q05
C O L O M B I A
* COLOMBIA: Fitch Affirms Ratings at 'BB', Outlook Stable
D O M I N I C A N R E P U B L I C
* DOMINICAN REPUBLIC: Fitch Rates New Bonds 'B-' Pending Reforms
M E X I C O
AOL LATIN AMERICA: Class A Common Stock to Be Delisted May 19
BALLY TOTAL: Offers Crunch Fitness for Sale
GRUPO IUSACELL: Hopes to Make Interest Payments in 2Q05
HYLSAMEX: Hylsa To Prepay Certificado Bursatil Due 2008
ROCK-TENN: Moody's Cuts, Assigns Various Ratings
TFM: KCSR Commences Solicitation of Consents to Amend Indentures
U R U G U A Y
* URUGUAY: Fitch Rates $300M Issue Due 2017 'B+'; Stable Outlook
V E N E Z U E L A
PDVSA: BCV Requires US Dollar Oil Revenues Be Converted
PDVSA: CITGO Investigating Committee Postpones Hearing Inquest
- - - - - - - - - -
=================
A R G E N T I N A
=================
AHOLD: Weak Currency, Flat Sales Yield Lackluster 1Q05 Numbers
--------------------------------------------------------------
HIGHLIGHTS:
- Consolidated first quarter 2005 net sales amounted to EUR13.0
billion
- Decline of 1.0% compared to same period last year
- Net sales impacted by lower currency exchange rates
- Consolidated first quarter net sales growth excluding currency
impact was 2.6%
- First trading statement under IFRS
Ahold announced yesterday consolidated net sales (excluding VAT)
of EUR 13.0 billion for the first quarter of 2005 (16 weeks:
January 3, 2005 - April 24, 2005), a decline of 1.0% compared to
the same period last year (Q1 2004: EUR 13.1 billion).
Net sales were impacted by lower currency exchange rates, in
particular that of the U.S. dollar. Net sales excluding currency
impact increased by 2.6% in the first quarter of 2005.
The numbers presented in this trading statement include net
sales accounted for in accordance with International Financial
Reporting Standards ("IFRS"), which is Ahold's primary GAAP as
from 2005.
The impact from the adoption of IFRS is discussed under
"Adoption of IFRS" below. The net sales numbers presented in
this press release are preliminary and unaudited.
UNIT Highlights:
1. Stop & Shop/Giant-Landover Arena
- Net sales at our Stop & Shop/Giant-Landover Arena in the first
quarter of 2005 increased by 4.6% to USD 5.0 billion (Q1 2004:
USD 4.8 billion). Net sales in the first quarter of 2005
included USD 83 million of net sales to BI-LO and Bruno's, which
prior to their sale in the first quarter, were eliminated as
intercompany sales.
- Identical sales at Stop & Shop declined by 0.2%, while
identical sales at Giant-Landover declined by 3.6%. Identical
sales at both Stop & Shop and Giant-Landover continue to reflect
the impact of primarily competitive store openings.
- Comparable sales at Stop & Shop increased by 0.2%, while
comparable sales at Giant-Landover declined by 3.0%.
- Peapod continues to show strong net sales.
2. Giant-Carlisle/Tops Arena
- Net sales at our Giant-Carlisle/Tops Arena in the first
quarter of 2005 increased by 1.7% to USD 1.9 billion (Q1 2004:
USD 1.9 billion).
- Identical sales at Giant-Carlisle increased by 3.7% mainly due
to growth in sales per customer driven by our successful
customer loyalty programs within a very competitive market.
Identical sales at Tops declined by 1.2% mostly impacted by a
lower identical customer count.
- Comparable sales at Giant-Carlisle increased by 4.6%, while
comparable sales at Tops declined by 1.0%.
3. Albert Heijn Arena
- Net sales at our Albert Heijn Arena in the first quarter of
2005 increased by 4.2% to EUR 2.0 billion (Q1 2004: EUR 1.9
billion).
- Albert Heijn net sales increased by 4.9% to EUR 1.8 billion
(Q1 2004: EUR 1.7 billion). Albert Heijn continued its
repositioning program in the Dutch retail market by, among other
things, repositioning the Health, Beauty and Care categories in
this quarter.
- In a deflationary market, identical sales at Albert Heijn
increased by 4.3%, primarily as a result of a higher number of
customer visits.
4. Central Europe Arena
- Net sales at our Central Europe Arena in the first quarter of
2005 increased by 14.7% to EUR 406 million (Q1 2004: EUR 354
million). The net sales growth in the first quarter of 2005
excluding currency impact was 2.5%. Excluding the Polish
hypermarkets which were divested during the first quarter, this
growth would have been 9.3% in local currencies.
- The identical sales growth of our compact hypermarkets and
supermarkets in Central Europe was positive, resulting from more
customers despite a lower average basket size. Identical sales
for the entire Arena declined by 0.6% mainly due to our divested
hypermarkets in Poland that were still included for two months.
5. Schuitema
- Net sales at Schuitema in the first quarter of 2005 were
substantially at the same level as in the first quarter of 2004
(EUR 0.9 billion).
- Despite the ongoing price competition, Schuitema was able to
sustain the same level of net sales mainly as a result of higher
volumes.
6. U.S. Foodservice
- In the first quarter of 2005, U.S. Foodservice net sales
increased by 0.9% to USD 5.6 billion (Q1 2004: USD 5.5 billion).
- Net sales for the quarter were negatively impacted by
approximately 3% as a result of the company's national account
customer rationalization program.
- Food price inflation continued to be the primary driver of the
overall net sales growth.
7. Unconsolidated joint ventures and equity investees
- Net sales at our unconsolidated joint ventures and equity
investees in the first quarter of 2005 decreased by 0.8% to EUR
2.6 billion (Q1 2004: EUR 2.6 billion).
- At ICA, the first quarter 2005 net sales decreased by 4.5% to
SEK 16.6 billion (Q1 2004: SEK 17.4 billion), mainly due to
entering into a 50/50 unconsolidated joint venture involving
Kesko and ICA's Baltic operations in January 2005 and the sale
of the Danish operations in August 2004.
- Net sales at ICA Sweden increased due to a successful price-
repositioning campaign which began in March. Net sales at ICA
Norway were under pressure as a result of increased competition
from price focused retail players.
ADOPTION OF IFRS
This trading statement includes net sales accounted for in
accordance with International Financial Reporting Standards
("IFRS"), which is Ahold's primary GAAP as from 2005. The
transition to IFRS did not have an impact on the revenue
recognition criteria. However, the net sales presented in this
trading statement (including comparative figures for the first
quarter of 2004) are impacted by IFRS with respect to
discontinued operations.
Under Dutch GAAP, the results from operations that qualify as
discontinued operations are included in continuing operations in
the statement of operations until the date the operations are
sold. Under IFRS, the results from operations that qualify as
discontinued operations are presented separately from continuing
operations in the statement of operations.
As required under IFRS, the prior year net sales figures
included as comparatives in this trading statement have been
adjusted to exclude net sales from discontinued operations.
Following is a reconciliation between reported net sales in Q1
2004 under Dutch GAAP and comparative net sales under IFRS for
the same period:
In millions
Net sales as reported
in Q1 2004 under Dutch GAAP EUR 15,370
Net sales in Q1 2004
from discontinued operations (EUR 2,278)
------------------------------------------------------
Net sales as reported in Q1 2004
under IFRS EUR 13,092
The following operations qualified as discontinued operations
under IFRS at the end of the first quarter of 2005:
1. Bompre?o/Hipercard divested in the first quarter of 2004
2. Thailand divested in the first quarter of 2004
3. Spain divested in the fourth quarter of 2004
4. Disco divested* in the fourth quarter of 2004
5. BI-LO/Bruno's divested in the first quarter of 2005
6. G. Barbosa divested in the first quarter of 2005
7. Deli XL divestment planned in 2005
* Ownership of approximately 85% of the outstanding shares in
Disco has been transferred; Ahold intends to transfer the
remaining Disco shares as soon as legally possible.
ALTOS SERVICIOS: Seeks Court Authority to Reorganize
----------------------------------------------------
Altos Servicios S.R.L., a company operating in Buenos Aires,
requested for reorganization after failing to pay its
liabilities. The petition, once approved by the court, will
allow the company to negotiate a settlement with its creditors
in order to avoid a straight liquidation.
The case is pending before Court No. 3 of Buenos Aires' civil
and commercial tribunal. The city's Clerk No. 6 assists the
court on this case.
CONTACT: Altos Servicios S.R.L.
Paraguay 3482
Buenos Aires
ANDHAL'S SERVICIOS: Proceeds With Liquidation
---------------------------------------------
Mr. Pablo Javier Lacolla was successful in getting a bankruptcy
judgement against Andhal's Servicios S.A. after Court No. 8 of
Buenos Aires' civil and commercial tribunal declared the Company
"Quiebra," reports La Nacion. The creditor petitiond for the
Company's liquidation after it failed to pay debts amounting to
US$17,463.33.
As such, the cosmetics firm will now start the process with Ms.
Marta C. Lucena as trustee. Creditors must submit proof of their
claim to the trustee by August 1 for authentication. Failure to
comply with this requirement will mean disqualification from the
payments to be made after the Company's assets are liquidated.
The city's Clerk No. 16 assists the court on the case that will
close with the sale of all the Company's assets.
CONTACT: Andhal's Servicios S.A.
Jorge L. Borges 1911
Buenos Aires
Ms. Marta C. Lucena, Trustee
Parana 774
Buenos Aires
BIOTECNIA S.R.L.: Court Approves Bankruptcy
-------------------------------------------
Biotecnia S.R.L. was declared bankrupt after Court No. 18 of
Buenos Aires' civil and commercial tribunal endorsed the
petition of Ms. Gisela Sanchez for the company's liquidation.
Argentine daily La Nacion reports that the court assigned Mr.
Carlos Battaglia to supervise the liquidation process as
trustee. Mr. Battaglia will validate creditors' proofs of claims
until June 27.
The city's Clerk No. 35 assists the court in resolving this
case. Proceeds from the sale of the Company's assets will be
used to repay its debts.
CONTACT: Biotecnia S.R.L.
Av. Avellaneda 1989
Buenos Aires
Mr. Carlos Battaglia, Trustee
Doctor Emilio Ravignani 2526
Buenos Aires
CASA BRUSCO: Bankruptcy Process Initiated by Court Ruling
---------------------------------------------------------
Court No. 9 of Buenos Aires' civil and commercial tribunal
declared local company Casa Brusco S.A. "Quiebra", relates La
Nacion. The order comes in approval of the bankruptcy petition
filed by creditor Jose Daniel Swiszcz.
The company will undergo the bankruptcy process with Mr. Jorge
Blazquez as trustee. Creditors are required to present proof of
their claims to Mr. Blazquez for verification before August 12.
Editors who fail to submit the required documents by the said
date will not qualify for any post-liquidation distributions.
Clerk No. 17 assists the court on the case.
CONTACT: Casa Brusco S.A.
Avenida Cordoba 836
Buenos Aires
Mr. Jorge Blazquez, Trustee
Fray Justo Santa MarĦa de Oro 2381
Buenos Aires
CENTRAL PUERTO: Reports Increased Net Profit in 1Q05
----------------------------------------------------
Argentine electricity generator Central Puerto SA reported a net
profit of ARS11.5 million in the 1Q05, higher than the ARS9.2
million posted in the same year-ago period, says Dow Jones
Newswires. In a filing to the local stock exchange, Central
Puerto revealed net sales rose 42% to ARS119.7 million.
The Company also reported exchange rate gains of ARS23.8
million, compared with ARS26.4 million in the 1Q04, which were
offset by interest payments of ARS15 million, compared with
ARS14.2 million a year ago.
In the filing, the Company said it signed a settlement agreement
with Electric Generators and Transmissions of Uruguay, or UTE,
on March 11 to end a lawsuit related to export rates not
converted into devalued Argentine pesos. As a result of the
accord, UTE agreed to pay Central Puerto $2,005,692 by May 2.
As of March 31, 2005, the Company's net assets stood at ARS415.2
million, down from ARS408.1 million at the end of 1Q04.
Central Puerto, created in 1992, is dedicated to the generation
of electrical energy. France's Total owns 63.9% of the Company.
COVER SALUD: Gets Court Approval for Restructuring
--------------------------------------------------
Cover Salud S.A. will begin reorganization following the
approval of its petition by Court No. 15 of Buenos Aires' civil
and commercial tribunal. The opening of the reorganization will
allow the company to negotiate a settlement with its creditors
in order to avoid a straight liquidation.
Mr. Julio Hector Grisolia will oversee the reorganization
proceedings as the court-appointed trustee. He will verify
creditors' claims until July 1. The validated claims will be
presented in court as individual reports on September 15.
Mr. Grisolia is also required by the court to submit a general
report essentially auditing the company's accounting and
business records as well as summarizing important events
pertaining to the reorganization. The report will be presented
in court on October 28.
An Informative Assembly, the final stage of a reorganization
where the settlement proposal is presented to the company's
creditors for approval, is scheduled on March 23, 2006.
Clerk No. 29 assists the court on this case.
CONTACT: Cover Salud S.A.
Carlos Pellegrini 739
Buenos Aires
Mr. Julio Hector Grisolia, Trustee
Jeronimo Salguero 2533
Buenos Aires
DHV COMMUNICATIONS: Mandatory Report Deadlines Set
--------------------------------------------------
Mr. Carlos Alberto Llorca, the trustee assigned to supervise the
liquidation of DHV Communications Inc., will submit the
validated individual claims for court approval on August 23.
These reports explain the basis for the accepted and rejected
claims. The trustee will also submit a general report of the
case on October 5.
Infobae reports that Court No. 5 of Buenos Aires' civil and
commercial tribunal has jurisdiction over this bankruptcy case.
The city's Clerk No. 9 assists the court with the proceedings.
CONTACT: Mr. Carlos Alberto Llorca, Trustee
Carlos Pellegrini 85
Buenos Aires
EDENOR: Posts ARS9.72 Mln Net Profit in 1Q05
--------------------------------------------
Power distributor Edenor revealed a 1Q05 net profit of ARS9.72
million in a filing with the Buenos Aires stock market, reports
Business News Americas. The filing did not provide comparative
figures but according to local press, Edenor earned profits of
ARS19.4 million in 1Q04. As of March 31, 2005, Edenor had
ARS1.54 billion in net equity.
French electricity group Electricite de France (EDF) has
announced it is selling its 90% stake in Edenor. EdF's
international unit, EDFI, has already started non-binding
preliminary conversations with third parties regarding Edenor,
local press reported.
Argentine group Pegasus and investment groups Dolphin, Leucadia,
Marathon, Ashmore, Southern Cross, Pegasus and CoinVest could be
buyers.
Edenor serves over 2.2 million clients in the northern part of
capital city Buenos Aires.
CONTACT: EDENOR S.A.
Azopardo Building
Azopardo 1025 (1107) Capital Federal
Phone: (54-11) 4346-5000
Fax: (54-11) 4346-5300
E-mail: to ofitel@edenor.com.ar
Web Site: http://www.edenor.com.ar
FADEP S.R.L.: Court Schedules Informational Meeting
---------------------------------------------------
Fadep S.R.L., headquartered in La Plata, will hold an
informative assembly for its creditors on July 7. A completed
settlement plan will be presented for creditor approval during
the said assembly.
Infobae reports that Court No. 7 of the city's civil and
commercial tribunal has jurisdiction over this case.
CONTACT: Fadep S.R.L.
Avenida 520 entre 149 y 150
La Plata
Mr. Leon Sergio Fuks, Trustee
Calle 47 numero 862
La Plata
IANSON S.A.: Liquidates Assets to Pay Debts
-------------------------------------------
Court No. 26 of Buenos Aires' civil and commercial tribunal
ordered the liquidation of Ianson S.A. The company was
restructuring its debts when the order was issued.
Infobae reports that local accounting firm "Estudio Israelson-
Kohan-Consultores" will serve as trustee on this case. The firm
will accept creditors proof of claims until July 7.
After the verification of these claims, the trustee will prepare
the individual reports and submit them in court on September 2.
A general report of the case is also due for submission on
October 17.
The city's Clerk No. 52 assists the court on this case.
CONTACT: "Estudio Israelson-Kohan-Consultores"
Trustee
Lavalle 1672
Buenos Aires
LATINOAMERICANA TRADING: Court Orders Liquidation
-------------------------------------------------
Buenos Aires-based Latinoamericana Trading Cable Association
S.A. is set to liquidate its assets after Court No. 19 of Buenos
Aires' civil and commercial tribunal modified its "concurso
preventivo" proceedings to "Quiebra Decretada."
Infobae reports that the company will liquidate its properties
under the direction of trustee Eduardo Fermin Luis Aguinaga. Mr.
Aguinaga will receive creditors proof of claims until May 31.
After the claims verification period, the trustee will prepare
the individual and general report for the court. The individual
reports will be submitted on July 13 while the general report is
due on September 8.
CONTACT: Latinoamericana Trading Cable Association S.A.
Bartolome Mitre 1541
Buenos Aires
Mr. Eduardo Fermin Luis Aguinaga, Trustee
Maipu 374
Buenos Aires
METROVIAS: Cuts Net Losses Despite 1Q05 Utilization Decline
-----------------------------------------------------------
Buenos Aires subway operator Metrovias slashed net losses in the
1Q05 to ARS3.06 million (US$1.07mn) from ARS8.05 million in the
same period in the previous year, reports Business News
Americas. In a filing to the country's securities regulator
(CNV), the Company revealed a 5.15% decline in revenue to
ARS35.6 million resulting from a 4.5% drop in passengers to 74.2
million.
Operating losses narrowed to ARS1.33 million from ARS6.89
million in the 1Q04 due to lower operating costs.
Metrovias, a division of local infrastructure and services
company Clisa, said it expects to continue the renegotiation of
its concession contract with the government.
POLICRONIO: To Wind-Up Operations on Court Orders
-------------------------------------------------
The verification of creditors proof of claims for the Policronio
S.A.C.I.F.I.M.A. y C. bankruptcy case has been moved to June 29
after Court No. 4 of Buenos Aires' civil and commercial tribunal
modified the Company's ongoing reorganization to liquidation.
Local news source Infobae reports that the city's Clerk No. 8
assists the court in resolving this case.
CONTACT: Mr. Pablo Ernesto Aguilar, Trustee
Hipolito Yrigoyen 1516
Buenos Aires
QUINTINO BOCAYUVA: Court Favors Creditor's Bankruptcy Motion
------------------------------------------------------------
Court No. 20 of Buenos Aires' civil and commercial tribunal
declared Quintino Bocayuva Construccion S.A. bankrupt, says La
Nacion. The ruling comes in approval of the petition filed by
the Company's creditor, Mr. Miguel Luis De la Rosa.
Trustee Rut Alfici will examine and authenticate creditors'
claims to determine the nature and amount of the Company's
debts. However, the report did not reveal the deadline for the
submission of creditors' proof of claims.
The city's Clerk No. 39 assists the court on the case.
CONTACT: Quintino Bocayuva Construccion S.A.
Lavalle 2331
Buenos Aires
Ms. Rut Alfici, Trustee
Rodriguez Pena 565
Buenos Aires
SIETE ASES: Reorganization To End in Liquidation
------------------------------------------------
The reorganization of Siete Ases S.A. has progressed into
bankruptcy. Argentine news source Infobae relates that Court No.
19 of Buenos Aires' civil and commercial tribunal ruled that the
Company is "Quiebra Decretada."
The report adds that the court retained Ms. Raquel Steinhaus as
trustee, who will verify creditors' proofs of claim until June
21.
The court also ordered the trustee to prepare individual reports
after the verification process is completed, and have them ready
by August 16. A general report on the bankruptcy process is
expected on September 28.
CONTACT: Siete Ases S.A.
Jeronimo Salguero 1575
Buenos Aires
Ms. Raquel Steinhaus, Trustee
Paraguay 577
Buenos Aires
TBA: Court Approves Concurso Motion
-----------------------------------
Court No. 9 of Buenos Aires' civil and commercial tribunal
approved a petition for reorganization filed by Trenes de Buenos
Aires S.A., according to a report from Argentine daily La
Nacion.
Local accounting firms "Estudios Waisberg-Knoll", "Roggiano y
Asociados", and "Bosnic, Lopez, Feltrin y Asociados" will serve
as joint trustee on this case. The trustees will accept
creditors proof of claims until September 6.
An informative assembly will be held on October 14 next year.
Creditors will vote to ratify the completed settlement plan
during the said assembly.
The city's Clerk No. 18 assists the court on the case.
Trenes de Buenos Aires (TBA) is a passenger railway
concessionaire based in the city of Buenos Aires. The company
reported assets valued at US$302,572,261.64 and debts totaling
US$235,719,311.26 when it filed for reorganization.
CONTACT: Trenes de Buenos Aires S.A.
Av. Ramos Mejia 1358
Buenos Aires
"Estudios Waisberg-Knoll"
Trustee
Av. Cordoba 1237
"Roggiano y Asociados"
Trustee
Av. Cordoba 2817
"Bosnic, Lopez, Feltrin y Asociados"
Trustee
Suipacha 472
Buenos Aires
=============
B E R M U D A
=============
LORAL SPACE: Releases Quarterly Report of Financial Condition
-------------------------------------------------------------
Organization and Principal Business
Loral Space & Communications Ltd. ("Loral," the "Company," "we,"
"our" and "us," terms that include our subsidiaries unless
otherwise indicated or the context requires), together with its
subsidiaries is a leading satellite communications company with
substantial activities in satellite-based communications
services and satellite manufacturing. Loral is organized into
two operating segments:
- Satellite Services, managed by our Loral Skynet division,
generates its revenues and cash flows from providing satellite
capacity and networking infrastructure to customers for video
and direct to home ("DTH") broadcasting, high-speed data
distribution, Internet access, communications and networking
services.
- Satellite Manufacturing , conducted by our subsidiary, Space
Systems/Loral, Inc. ("SS/L"), generates its revenues and cash
flows from designing and manufacturing satellites, space systems
and space system components for commercial and government
applications including fixed satellite services, DTH
broadcasting, broadband data distribution, wireless telephony,
digital radio, military communications, weather monitoring and
air traffic management.
Bankruptcy Filings, Sale of Assets and Reorganization
Bankruptcy Filings
On July 15, 2003, Loral and certain of its subsidiaries (the
"Debtor Subsidiaries" and collectively with Loral, the
"Debtors"), including Loral Space & Communications Corporation,
Loral SpaceCom Corporation ("Loral SpaceCom"), Loral Satellite,
Inc. ("Loral Satellite"), SS/L and Loral Orion, Inc. ("Loral
Orion"), filed voluntary petitions for reorganization under
chapter 11 of title 11 ("Chapter 11") of the United States Code
(the "Bankruptcy Code") in the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court")
(Lead Case No. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through
03-41728 (RDD)) (the "Chapter 11 Cases"). We and our Debtor
Subsidiaries continue to manage our properties and operate our
businesses as "debtors in possession" under the jurisdiction of
the Bankruptcy Court and in accordance with the provisions of
the Bankruptcy Code (see Basis of Presentation Note 3).
Also on July 15, 2003, Loral and one of its Bermuda subsidiaries
(the "Bermuda Group") filed parallel insolvency proceedings in
the Supreme Court of Bermuda (the "Bermuda Court"). On that
date, the Bermuda Court entered an order appointing Philip
Wallace, Chris Laverty and Michael Morrison, partners of KPMG,
as Joint Provisional Liquidators ("JPLs") in respect of the
Bermuda Group. The Bermuda Court granted the JPLs the power to
oversee the continuation and reorganization of the Bermuda
Group's businesses under the control of their respective boards
of directors and under the supervision of the Bankruptcy Court
and the Bermuda Court. The JPLs have not audited the contents of
this report.
As a result of our voluntary petitions for reorganization, all
of our prepetition debt obligations were accelerated. On July
15, 2003, we also suspended interest payments on all of our
prepetition unsecured debt obligations. A creditors' committee
(the "Creditors' Committee") was appointed in the Chapter 11
Cases to represent all unsecured creditors, including all debt
holders and, in accordance with the provisions of the Bankruptcy
Code, has the right to be heard on all matters that come before
the Bankruptcy Court (see Note 12).
For the duration of the Chapter 11 Cases, our businesses are
subject to the risks and uncertainties of bankruptcy. For
example, the Chapter 11 Cases could adversely affect our
relationships with customers, suppliers and employees, which in
turn could adversely affect the going concern value of our
businesses and of our assets, particularly if the Chapter 11
Cases are protracted. Also, transactions outside the ordinary
course of business are subject to the prior approval of the
Bankruptcy Court, which may limit our ability to respond to
certain market events or take advantage of certain market
opportunities, and, as a result, our operations could be
materially adversely affected.
Because we are in Chapter 11, the pursuit of claims and
litigation pending against us that arose prior to or relate to
events that occurred prior to our bankruptcy filings is
generally subject to an automatic stay under Section 362 of the
Bankruptcy Code. Accordingly, absent further order of the
Bankruptcy Court, parties are generally prohibited from taking
any action to recover any prepetition claims or enforce any lien
against or obtain possession of any of our property. In
addition, pursuant to Section 365 of the Bankruptcy Code, we may
reject or assume prepetition executory contracts and unexpired
leases. Parties affected by our rejections of contracts or
leases may file claims with the Bankruptcy Court.
Sale of Assets
On March 17, 2004, Loral Space & Communications Corporation,
Loral SpaceCom and Loral Satellite consummated the sale of our
North American satellites and related assets to certain
affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd.
(collectively, "Intelsat"). At closing, we received
approximately $1.011 billion, consisting of approximately $961
million for the North American satellites and related assets,
after adjustments, and $50 million for an advance on a new
satellite to be built for Intelsat by SS/L. Our obligations with
respect to the $50 million advance are secured by the Telstar
14/Estrela do Sul-1 satellite and related assets, including
insurance proceeds relating to the satellite. We used a
significant portion of the funds received to repay all $967
million of our outstanding secured bank debt. In addition, after
closing, we received from Intelsat approximately $16 million to
reimburse a deposit made by us for the launch of Telstar 8, and
we received an additional $4 million in May 2004 as a purchase
price adjustment resulting from resolution of a regulatory
issue.
The North American satellites and related assets sold to
Intelsat have been accounted for as a discontinued operation.
Reorganization
On March 22, 2005 and March 28, 2005, we filed a revised plan of
reorganization (the "Plan of Reorganization") and disclosure
statement (the "Disclosure Statement"), respectively, with the
Bankruptcy Court. The Plan of Reorganization and Disclosure
Statement, which revise the terms of a plan and disclosure
statement previously filed on December 5, 2004, reflect an
agreement among us, the Creditors' Committee and the Ad-Hoc
Committee of SS/L trade creditors on the elements of a
consensual plan of reorganization. The Disclosure Statement
establishes the enterprise value of reorganized Loral at between
approximately $632 million and approximately $862 million. The
Plan of Reorganization provides, among other things, that:
- Our two businesses, Satellite Manufacturing ("New SS/L") and
Satellite Services ("New Skynet"), will emerge intact as
separate subsidiaries of reorganized Loral ("New Loral").
- New SS/L will emerge debt-free.
- New Loral will emerge as a public company under current
management and will seek listing on a major stock exchange.
- Holders of allowed claims against SS/L and Loral SpaceCom will
be paid in cash in full, including interest from the petition
date to the effective date of the Plan of Reorganization.
- Loral Orion unsecured creditors will receive approximately 80
percent of New Loral common stock and their pro rata share of
$200 million of preferred stock to be issued by New Skynet.
These creditors also will be offered the right to subscribe to
purchase their pro-rata share of $120 million in new senior
secured notes of New Skynet, which rights offering will be
underwritten by certain Loral Orion creditors who will receive a
$6 million fee which may be payable in additional New Skynet
notes.
- Loral bondholders and certain other unsecured creditors will
receive approximately 20 percent of the common stock of New
Loral.
- Existing common and preferred stock will be cancelled and no
distribution will be made to the holders of such stock.
On December 17, 2004, the United States District Court for the
Southern District of New York reversed the Bankruptcy Court's
decision denying the motion of the Ad Hoc Loral Stockholders
Protective Committee for the appointment of an examiner under
section 1104(c) of the Bankruptcy Code and remanded the matter
to the Bankruptcy Court to appoint a qualified independent
examiner. On December 20, 2004, the Bankruptcy Court ordered
that the United States Trustee appoint an examiner to determine
whether the Debtors, including their professionals, have used
customary and appropriate processes and procedures to value
their assets and businesses or, on the contrary, have employed
improper processes and procedures in order to arrive at a
materially reduced valuation of their assets and businesses. The
Bankruptcy Court further ordered that the examiner shall
complete his or her investigation within 30 days of appointment
and shall file his or her final report within 60 days of
appointment. The Bankruptcy Court established a budget of
$200,000 for the examiner to be paid by the Debtors' estates. On
March 14, 2005, the examiner filed his report with the
Bankruptcy Court, in which he stated, among other things, his
conclusion that the value range of Loral could reasonably exceed
the value range set forth in our December 2004 disclosure
statement, leading, in the examiner's view, to potential
alternative low, midpoint and high enterprise valuations for
Loral of $931 million, $1,097 million and $1,263 million,
respectively. On March 29, 2005, the United States Trustee for
the Southern District of New York appointed an official
committee of equity security holders (the "Equity Committee")
(as amended on April 7, 2005 and April 11, 2005).
Implementation of the Plan of Reorganization and the treatment
of claims and equity interests as provided therein are subject
to final documentation and confirmation of such Plan of
Reorganization by the Bankruptcy Court. The Bankruptcy Court
hearing to consider approval of the Disclosure Statement is set
for June 1, 2005, and, assuming its approval at that time, the
hearing to consider confirmation of the Plan of Reorganization
has been tentatively scheduled for July 13, 2005. The
appointment of the Equity Committee may lead to a delay in
implementation of the Plan of Reorganization, and we cannot
predict with certainty when or if confirmation of the Plan of
Reorganization will occur. There can be no assurance that we
will be able to obtain court approval of the Disclosure
Statement or confirmation of the Plan of Reorganization.
Although our cash is mostly unrestricted, it resides in
different Debtor Subsidiaries and we are not able to move cash
freely between or among certain of our Debtor Subsidiaries
without Bankruptcy Court approval. Accordingly, one or more of
our Debtor Subsidiaries may not have sufficient cash to operate
while another Debtor Subsidiary may have surplus cash. In
particular, if SS/L does not receive a significant portion of
the insurance proceeds from the Telstar 14/Estrela do Sul-1
failure during the second quarter of 2005, SS/L will need
additional cash to operate.
Certain contracts that SS/L has entered into recently provide
that SS/L's customer may defer milestone payments otherwise due
until after SS/L emerges from bankruptcy. Accordingly, SS/L
expects to incur, through July 31, 2005, costs of approximately
$59 million in performance on these contracts without
corresponding payments and expects to have vendor termination
liability exposure of approximately $12 million. If SS/L has not
emerged from bankruptcy by July 31, 2005, SS/L will incur
additional costs in performing on these contracts, which will
further increase its cash needs during the pendency of the
Chapter 11 Cases.
In January 2004, our Telstar 14/Estrela do Sul-1 satellite's
North solar array only partially deployed after launch,
diminishing the power and life expectancy of the satellite. SS/L
has submitted a constructive total loss claim to the insurers
for the insured value of $250 million (see Note 8). SS/L has
reached agreement with a number of insurers with respect to this
pending insurance claim. Under this settlement, which is subject
to Bankruptcy Court approval, SS/L will receive 82% of each
settling insurer's respective proportion of the insured amount
for an aggregate of $61 million. In addition, under the
settlement, the settling insurers will waive any rights they may
have to the satellite. SS/L is in the process of finalizing
settlement agreements with another group of insurers on these
same terms, which agreements, when executed and approved by the
Bankruptcy Court, will increase the insurance proceeds to be
received from the settling insurers to approximately $122
million. The Bankruptcy Court hearing to consider approval of
the settlement is scheduled for May 10, 2005, and, if approved,
SS/L expects to receive the insurance proceeds from the settling
insurers in May 2005. Pursuant to the terms of our security
agreement with Intelsat, $9.4 million of such insurance
proceeds, representing the remaining unearned portion of the $50
million advance previously made by Intelsat to SS/L, will be
deposited into a restricted account subject to a control
agreement in favor of Intelsat, whereupon Intelsat's security
interest in all other collateral will be released. If, however,
the settlement described above is not approved by the Bankruptcy
Court, or, if approved but SS/L does not receive insurance
proceeds during the second quarter of 2005, SS/L will need
additional cash to operate, which it must obtain from other
Debtor Subsidiaries or third parties. There can be no assurance
that SS/L will be able to obtain the funds it requires. As to
the remaining insurers, SS/L continues to negotiate with them to
reach a similar settlement. If SS/L is able to reach a
settlement with all of its insurers on the terms described
above, SS/L will receive aggregate insurance proceeds of $205
million and retain title to the Telstar 14/Estrela do Sul-1
satellite. In the event, however, that SS/L negotiates a lower
settlement with the remaining insurers (which will also require
Bankruptcy Court approval), SS/L may be required, under certain
circumstances, to adjust the settlement amount it receives from
the settling insurers as described above, to the lower
settlement amount.
Income Taxes
During 2005 and 2004, Loral continued to maintain the 100%
valuation allowance against the net deferred tax assets of its
U.S. consolidated group, established at December 31, 2002 and
recorded no benefit for its domestic loss. The income tax
provision for continuing operations includes any change to this
valuation allowance, any provision for current federal, state
and foreign income taxes and any adjustment to tax contingency
accruals for potential audit issues. The tax contingency
accruals are based on our estimate of whether additional taxes
will be due in the future. Any additional taxes due will be
determined only upon completion of current and future federal,
state and international tax audits. The timing of such payments
cannot be determined but we expect they will not be made within
one year. Any such liability would be unsecured pre-petition
liabilities in our bankruptcy proceedings and will be afforded
the treatment set forth in the plan of reorganization approved
by the Bankruptcy Court. Therefore, the tax contingency
liability is included in "Liabilities Subject to Compromise" in
the accompanying Condensed Consolidated Balance Sheets.
Additional Cash Flow Information
We completed the sale of our North American satellites and
related assets to Intelsat. The operating revenues and expenses
of these assets and interest expense on our secured bank debt
through March 18, 2004, have been classified as discontinued
operations under SFAS 144 for all periods presented. Due to
certain unsettled contingencies, we have deferred the expected
gain on the sale of approximately $11 million on our condensed
consolidated balance sheet as of March 31, 2005. The
determination of the actual gain will be finalized when all
contingencies are resolved. Accordingly, the actual gain
ultimately recognized may be different than the deferred gain
reflected here.
The satellites sold had a net book value of $906 million,
including insurance proceeds receivable of $123 million, as of
March 17, 2004, the date of the sale. The other related assets
and liabilities sold had a net book value of $38 million and $12
million, respectively, as of March 17, 2004.
Accounting for Stock Based Compensation
The fair values of stock-based employee compensation were
calculated based on the relative values of the options at the
date of grant. In order for the stock options to have any value
to the holders, the market value of our common stock would have
to rise from $0.22 at March 31, 2005 to greater than $3.80 (the
lowest price of our stock options outstanding). However, the
Plan of Reorganization does not provide for participation or
recovery by our common shareholders and, accordingly, all stock
options outstanding as of March 31, 2005, have zero value to the
employees.
Comprehensive Loss
Unbilled amounts include recoverable costs and accrued profit on
progress completed, which have not been billed. Such amounts are
billed in accordance with the contract terms, typically upon
shipment of the product, achievement of contractual milestones,
or completion of the contract and, at such time, are
reclassified to billed receivables.
When we filed for Chapter 11, SS/L's hedges with counterparties
(primarily yen-denominated forward contracts) were cancelled
leaving SS/L vulnerable to foreign currency fluctuations in the
future. The inability to enter into forward contracts exposes
SS/L's future revenues, costs and cash associated with
anticipated yen-denominated receipts and payments to currency
fluctuations. As of March 31, 2005, SS/L had the following
amounts denominated in Japanese yen (which were translated into
U.S. dollars based on the March 31, 2005 exchange rate) that
were unhedged (in millions):
At March 31, 2005, SS/ L also had future expenditures in euros
of 78,000 ($100,000 U.S.) that were unhedged.
Foreign exchange gains or losses are reflected on the Condensed
Consolidated Statement of Operations as Other income (expense)
and we have reclassified $2.5 million of such foreign exchange
losses for the three months ended March 31, 2004 by reducing
interest expense and increasing Other expense by $2.5 million.
On March 17, 2004 we sold our North American satellites and
related assets.
In January 2004, our Telstar 14/ Estrela do Sul-1 satellite's
North solar array only partially deployed after launch,
diminishing the power and life expectancy of the satellite. At
the end of March 2004, the satellite began commercial service
able to operate 15 of its 41 transponders. The satellite's life
expectancy is now approximately seven years, as compared to a
design life of 15 years. During March 2004, we recorded an
impairment charge of $12 million to reduce the carrying value of
the satellite and related assets to the expected proceeds from
insurance of $250 million. Until the claim process with the
insurers has been completed, however, there can be no assurance
as to the amount of the insurance proceeds that we will receive
regarding this claim (see Note 2 for a discussion of settlement
negotiations with insurers). We believe resolution of the
insurance claim will not have a material adverse effect on our
consolidated financial position or our results of operations,
although no assurance can be provided.
On September 20, 2002, and as further amended in March 2003, we
agreed with APT Satellite Company Limited ("APT") to jointly
acquire the Apstar V satellite (now known as Telstar 18). Under
this agreement, we were initially to acquire 23% of the
satellite in return for paying 25% of the project cost, and were
to pay APT over time an additional 25% of the project cost to
acquire an additional 23% interest in the satellite. In August
2003, we amended our various agreements with APT, converting our
arrangement from joint ownership to a lease, but leaving
unchanged the cost allocation between the parties relating to
the project cost of the satellite. Under this arrangement, we
retain title to the entire satellite. The number of transponders
leased to APT are reduced over time upon repayment by us of the
second 25% of the satellite's project cost, ultimately to 54% of
the satellite's transponder capacity. In November 2003, we
agreed with APT to further revise our existing arrangement.
Under this revised arrangement, we agreed, among other things,
to accelerate the termination of APT's leasehold interest in 4.5
transponders by assuming $20.4 million of project cost which
otherwise would have been initially paid by APT, decreasing
APT's initial leased transponder capacity from 77% to 69% (or 37
transponders). In addition, we agreed to provide to APT, at no
additional cost, certain unused capacity on Telstar 10/ Apstar
IIR during an interim period (which has since expired), and
telemetry, tracking and control services for the life of the
satellite.
During September 2004, our Telstar 18 satellite began commercial
service and we recognized $87 million of sales and $80 million
of cost of sales relating to the sales-type lease element of our
agreement with APT. In addition, as of March 31, 2005, we have
recorded $11 million of deferred revenue relating to the
operating lease and service elements of the agreement (primarily
APT's lease of four transponders for four years and four
additional transponders for five years and our providing APT
with telemetry tracking and control services for the life of the
satellite), which will be recognized on a straight-line basis
over the life of the related element to be provided. Also, at
March 31, 2005, we recorded a long-term liability of $22
million, representing the present value of our obligation to
make future payments of $18.1 million to APT on each of the
fourth and fifth service anniversaries of Telstar 18, whereupon
APT's leasehold interest in the related transponders described
in the preceding sentence, would be terminated.
XTAR
XTAR, L.L.C. ("XTAR"), is a joint venture between us and
Hisdesat Servicios Estrategicos, S.A. ("Hisdesat"), a consortium
comprised of leading Spanish telecommunications companies,
including Hispasat, S.A., and agencies of the Spanish
government. XTAR was formed to construct and launch an X-band
satellite to provide X-band services to government users in the
United States and Spain, as well as other friendly and allied
nations. XTAR's satellite was successfully launched on February
12, 2005 and commenced service in March 2005.
We own 56% of XTAR (accounted for under the equity method since
we do not control certain significant operating decisions) and
Hisdesat owns 44%. During the first quarter of 2005, we made an
equity contribution of $7.3 million to XTAR, which was matched
by $5.76 million from Hisdesat. To date the partners in
proportion to their respective ownership interests have
contributed $109.6 million to XTAR.
XTAR and Loral Skynet have entered into agreements whereby Loral
Skynet provides to XTAR (i) certain selling, general and
administrative services, (ii) telemetry, tracking and control
services for the XTAR satellite, (iii) transponder engineering
and regulatory support services as needed and (iv) satellite
construction oversight services.
In January 2005, Hisdesat provided XTAR with a convertible loan
in the amount of $10.8 million, for which Hisdesat received
enhanced governance rights in XTAR. Moreover, if Hisdesat were
to convert the loan into XTAR equity, our equity interest in
XTAR would be reduced to 51%.
We have received Bankruptcy Court approval to contribute our
share of $2.0 million of additional capital contributions ($1.1
million) to XTAR. This additional contribution has not been made
by either us or Hisdesat to date.
XTAR entered into a Launch Services Agreement with Arianespace,
S.A. providing for launch of its satellite on Arianespace's
Ariane 5 ECA launch vehicle. Arianespace provided a one-year,
$15.8 million, 10% loan for a portion of the launch price,
secured by certain of XTAR's assets, including the satellite,
ground equipment and rights to the orbital slot. The remainder
of the launch price consists of a revenue-based fee to be paid
over time following commencement of operations by XTAR. If XTAR
is unable to repay the Arianespace loan when due, Arianespace
will have the right to foreclose on the XTAR assets pledged as
collateral, which may adversely affect our investment in XTAR.
XTAR has agreed to lease certain transponders on the Spainsat
satellite, which is being constructed by SS/L for Hisdesat.
XTAR's lease obligations for such service would initially amount
to $6.2 million per year, growing to $23 million per year. Under
this lease agreement, Hisdesat may also be entitled under
certain circumstances to a share of the revenues generated on
the Spainsat transponders.
Globalstar
On June 29, 2004, Globalstar, L.P. ("Globalstar") was dissolved.
As a result of Globalstar's liquidation, we recorded equity
income of $47 million on the reversal of vendor financing
liabilities that were non-recourse to SS/L in the event of non-
payment by Globalstar.
On April 14, 2004, Globalstar announced the completion of its
financial restructuring following the formal acquisition of its
main business operations and assets by Thermo Capital Partners
LLC ("Thermo"), effectively resulting in Globalstar exiting from
bankruptcy. Thermo invested $43 million in the newly formed
Globalstar company ("New Globalstar") in exchange for an 81.25%
equity interest, with the remaining 18.75% of the equity to be
distributed to the creditors of Globalstar. Our share of the
equity interest is approximately 2.7% of New Globalstar, for
which we assigned no value. Upon receipt of our equity interest
in New Globalstar in June 2004, we reversed the $2.8 million
unrealized gain included in accumulated other comprehensive
income against the remaining $2.8 million investment in
Globalstar's $500 million credit facility, which had no impact
on our condensed consolidated results of operations.
Satmex
In 1997, in connection with the privatization of Sat,lites
Mexicanos, S.A. de C.V. ("Satmex") by the Mexican Government of
its satellite services business, Loral and Principia S.A. de
C.V. ("Principia") formed a joint venture that acquired 75% of
the outstanding capital stock of Satmex. In addition to the $647
million of cash that was given to the Mexican Government for
this 75% interest, as part of the acquisition, a wholly owned
subsidiary of the joint venture, Servicios Corporativos
Satelitales S.A. de C.V. ("Servicios"), was required to issue a
seven-year government obligation ("Government Obligation") to
the Mexican Government. The Government Obligation had an initial
face amount of $125 million and has accreted at 6.03% to $189
million as of December 30, 2004, its maturity date. There is no
guarantee of this debt by Satmex; however, Loral and Principia
have pledged their respective membership interests in the joint
venture in a collateral trust to support this obligation. As
Servicios did not repay the Government Obligation when it was
due, the Mexican Government could foreclose on these shares,
which would result in Loral losing nearly all of its investment
stake in Satmex. A small portion of our ownership is comprised
of direct equity interests in Satmex and such interest has not
been pledged.
On June 30, 2004, Satmex's outstanding secured floating rate
notes became due and Satmex did not make the required principal
payment of $203 million. On November 1, 2004 Satmex's
outstanding high yield bonds became due and Satmex did not make
the required principal payments of $320 million. Satmex has been
working for the past year with its shareholders, including
Loral, and Satmex's creditors to negotiate a financial
restructuring plan. To date, no agreement has been reached that
satisfies all parties. Satmex has stated in its public filings
that it may be forced to file under either Chapter 11 of the
United States Bankruptcy Code or Mexican reorganization law or
both.
As of March 31, 2005, we had a 49% indirect economic interest in
Satmex. We account for Satmex using the equity method. In the
third quarter of 2003, we wrote off our remaining investment in
Satmex of $29 million (as an increase to our equity loss in
Satmex), due to the financial difficulties that Satmex was
having. Accordingly, there is no requirement for us to provide
for our allocated share of Satmex's net losses subsequent to
September 30, 2003.
Liabilities Subject to Compromise
We and our Debtor Subsidiaries have been operating as debtors in
possession under the jurisdiction of the Bankruptcy Court and in
accordance with the provisions of the Bankruptcy Code.
On the condensed consolidated balance sheets, the caption
"liabilities subject to compromise" reflects our carrying value
of prepetition claims that will be restructured in our Chapter
11 Cases. Pursuant to court order, we have been authorized to
pay certain prepetition operating liabilities incurred in the
ordinary course of business (e.g. salaries and insurance). Since
July 15, 2003, as permitted under the Bankruptcy Code, we have
rejected certain of our prepetition contracts and are
calculating our estimated liability to the unsecured creditors
affected by these rejections. The Bankruptcy Court established
January 26, 2004 as the bar date in the Debtors' Chapter 11
Cases, which is the date by which prepetition claims against us
and our Debtor Subsidiaries were to have been filed for
claimants to receive any distribution in the Chapter 11 Cases.
Differences between liability amounts estimated by us and claims
filed by our creditors are being investigated and the Bankruptcy
Court will make a final determination of the allowable claims.
The determination of how liabilities ultimately will be treated
cannot be made until the Bankruptcy Court approves a Chapter 11
plan of reorganization. (See Note 2). We will continue to
evaluate the amount and classification of our prepetition
liabilities through the remainder of our Chapter 11 Cases.
Should we identify additional liabilities subject to compromise,
we will recognize them accordingly. As a result, "liabilities
subject to compromise" may change. Claims classified as
"liabilities subject to compromise" represent secured as well as
unsecured claims.
Series C and D Preferred Stock
In August 2002, our Board of Directors approved a plan to
suspend indefinitely the future payment of dividends on our two
series of preferred stock. Accordingly, we have deferred the
payments of quarterly dividends due on the Series C and Series D
preferred stock. On July 15, 2003, we stopped accruing dividends
on the two series of preferred stock as a result of our Chapter
11 filing. Because we failed to pay dividends on the Series C
and the Series D preferred stock for six quarters, holders of
the majority of each class of such preferred stock are now
entitled, subject to the applicable effects of the Chapter 11
Cases and Loral's Bermuda insolvency proceedings, to elect two
additional members, for a total of four, to Loral's Board of
Directors. The Plan of Reorganization does not provide for
participation or recovery by holders of our preferred stock.
As a result of our voluntary petitions for reorganization, all
of our prepetition debt obligations were accelerated. A
creditors' committee was appointed in the Chapter 11 Cases to
represent all unsecured creditors, including all of our debt
holders and, in accordance with the provisions of the Bankruptcy
Code, the committee has the right to be heard on all matters
that come before the Bankruptcy Court (see Note 2).
On March 17, 2004, we repaid all $967 million of our outstanding
secured bank debt (see Notes 2 and 4). As of March 31, 2005, the
principal amounts of our prepetition debt obligations were
$1.049 billion.
Subsequent to our voluntary petitions for reorganization on July
15, 2003, we only recognized and paid interest on our secured
bank debt through March 18, 2004 and stopped recognizing and
paying interest on all other outstanding debt obligations. While
we are in Chapter 11, we only recognize interest expense to the
extent paid. For each of the three months ended March 31, 2005
and 2004, we did not recognize $10.9 million of interest expense
on our 9.5%, 11.25% and 12.5% senior notes and $15.3 million of
a reduction to accrued interest on our 10% senior notes as a
result of the suspension of interest payments on our debt
obligations.
Reorganization Expenses due to Bankruptcy
Commitments and Contingencies
SS/L has deferred revenue and accrued liabilities for
performance warranty obligations relating to satellites sold to
customers, which could be affected by future performance. SS/L
accounts for satellite performance warranties in accordance with
the product warranty provisions of FIN 45, which requires
disclosure, but not initial recognition and measurement, of
performance guarantees. SS/ L estimates the deferred revenue for
its warranty obligations based on historical satellite
performance. SS/ L periodically reviews and adjusts the deferred
revenue and accrued liabilities for warranty reserves based on
the actual performance of each satellite and the remaining
warranty period.
Loral Skynet has in the past entered into prepaid leases and one
other arrangement relating to transponders on its satellites,
under which Loral Skynet has certain warranty obligations. As of
March 31, 2005, Loral Skynet continues to provide for a warranty
for periods of approximately five to eight years with respect to
one transponder under the prepaid leases and four transponders
under the other arrangement. In the event of transponder
failure, customers are entitled to compensation if Skynet is
unable to provide replacement capacity, which compensation is
normally covered by insurance. In the case of prepaid leases,
the customer would be entitled to a refund equal to the
unamortized portion of the lease prepayment made by the
customer. For the other arrangement, in the event of an
unrestored failure, the customer would be entitled to
compensation on contractually prescribed amounts that decline
over time.
We filed for bankruptcy protection on July 15, 2003 and are
subject to its associated risks and uncertainties.
Nineteen of the satellites built by SS/L and launched since
1997, three of which are owned and operated by our subsidiaries
or affiliates, have experienced minor losses of power from their
solar arrays. Although to date, neither we nor any of the
customers using the affected satellites have experienced any
degradation in performance, there can be no assurance that one
or more of the affected satellites will not experience
additional power loss that could result in performance
degradation, including loss of transponder capacity or reduction
in power transmitted. In the event of additional power loss, the
extent of the performance degradation, if any, will depend on
numerous factors, including the amount of the additional power
loss, the level of redundancy built into the affected
satellite's design, when in the life of the affected satellite
the loss occurred, how many transponders are then in service and
how they are being used. It is also possible that one or more
transponders on a satellite may need to be removed from service
to accommodate the power loss and to preserve full performance
capabilities on the remaining transponders. A complete or
partial loss of a satellite's capacity could result in a loss of
orbital incentive payments to SS/L and, in the case of
satellites owned by Loral Skynet and its affiliates, a loss of
revenues and profits. With respect to satellites under
construction and the construction of new satellites, based on
its investigation of the matter, SS/L has identified and has
implemented remediation measures that SS/L believes will prevent
newly launched satellites from experiencing similar anomalies.
SS/L does not expect that implementation of these measures will
cause any significant delay in the launch of satellites under
construction or the construction of new satellites. Based upon
information currently available, including design redundancies
to accommodate small power losses, and that no pattern has been
identified as to the timing or specific location within the
solar arrays of the failures, we believe that this matter will
not have a material adverse effect on our condensed consolidated
financial position or our results of operations, although no
assurance can be provided.
In November 2004, Intelsat Americas 7 (formerly Telstar 7)
experienced an anomaly which caused it to completely cease
operations for several days before it was partially recovered.
Four other satellites manufactured by SS/L have designs similar
to Intelsat Americas 7 and, therefore, could be susceptible to
similar anomalies in the future. A partial or complete loss of a
satellite could result in a loss of orbital incentive payments
to SS/L.
Two satellites owned by us have the same solar array
configuration as one other 1300-class satellite manufactured by
SS/L that has experienced an event with a large loss of solar
power. SS/L believes that this failure is an isolated event and
does not reflect a systemic problem in either the satellite
design or manufacturing process. Accordingly, we do not believe
that this anomaly will affect our two satellites with the same
solar array configuration. The insurance coverage for these
satellites, however, provides for coverage of losses due to
solar array failures only in the event of a capacity loss of 75%
or more for one satellite and 80% or more for the other
satellite. We believe that the insurers will require either
exclusions of, or limitations on, coverage due to solar array
failures in connection with future insurance renewals for these
two satellites. There can no assurance that we can renew such
insurance on acceptable terms. An uninsured loss of a satellite
would have a material adverse effect on our consolidated
financial position and our results of operations.
SS/L has contracted to build a spot beam, Ka-band satellite for
a customer planning to offer broadband data services directly to
the consumer. SS/L had suspended work on this program in
December 2001 while the customer and SS/L discussed how to
resolve a contract dispute. In March 2003, SS/L and the customer
reached an agreement in principle to restart the satellite
construction program, and, in June 2003, SS/L and the customer
executed a definitive agreement and SS/L entered into a security
agreement with the customer that provided the customer with a
security interest in the work-in-progress of the customer's
contract (the "SS/L Security Agreement"). In September 2004,
SS/L and the customer amended the agreement to provide for,
among other things, acceleration of the payment of $15 million
of the outstanding vendor financing (received in October 2004)
and the granting of a security interest by the customer to
secure payment of the remaining vendor financing (the "Customer
Security Agreement"). In October 2004, the Bankruptcy Court
approved the Customer Security Agreement and SS/L's assumption
of the amended contract and the SS/L Security Agreement. As of
March 31, 2005, SS/L had billed and unbilled accounts receivable
and vendor financing arrangements of $54 million (including
accrued interest of $15 million) with this customer, of which
approximately $46 million will be paid to SS/L beginning in 2006
through 2011.
Under the terms of a master settlement agreement entered into
with Alcatel Space (together with Alcatel Space Industries,
"Alcatel"), the arbitration brought by Alcatel against Loral and
a related court proceeding to confirm the arbitral tribunal's
partial award were suspended, with termination of the
arbitration to occur on the date of confirmation of a plan of
reorganization or a liquidation, provided that if any action is
commenced in the Chapter 11 Cases seeking the repayment,
disgorgement or turnover of the transfers made in connection
with the master settlement agreement, because of the
commencement of the Chapter 11 Cases, the arbitration and
related court confirmation proceeding would not be terminated
until such repayment, disgorgement or turnover action had been
dismissed. The master settlement agreement also provides that
Alcatel is entitled to reinstate the arbitration if it is
required by judicial order to repay, disgorge or turn over the
consideration paid to it under the agreement in the context of
the Chapter 11 Cases.
SS/L is required to obtain licenses and enter into technical
assistance agreements, presently under the jurisdiction of the
State Department, in connection with the export of satellites
and related equipment, and with the disclosure of technical data
to foreign persons. Due to the relationship between launch
technology and missile technology, the U.S. government has
limited, and is likely in the future to limit, launches from
China and other foreign countries. Delays in obtaining the
necessary licenses and technical assistance agreements have in
the past resulted in, and may in the future result in, the delay
of SS/L's performance on its contracts, which could result in
the cancellation of contracts by its customers, the incurrence
of penalties or the loss of incentive payments under these
contracts.
The launch of ChinaSat 8 has been delayed pending SS/L's
obtaining the approvals required for the launch. In June 2004,
the Bankruptcy Court approved a settlement agreement among
ChinaSat, SS/L and China Great Wall Industry Corporation which
resolved a portion of the disputes outstanding among the
parties. This settlement agreement provided, among other things,
for a release by ChinaSat of any claim it may have against SS/L
to recover some or all of the $52 million that ChinaSat paid to
SS/L, and SS/L paid to China Great Wall, for a Chinese launch
vehicle. In February 2005, SS/L and ChinaSat reached a global
settlement to resolve all other issues outstanding between the
two companies, which settlement was approved by the Bankruptcy
Court in April 2005. Under the terms of that settlement, SS/L
assumed its construction contract with ChinaSat, as amended to
reflect the terms of the settlement. SS/L in turn has no
obligation to deliver the ChinaSat 8 satellite until all
required export licenses are received. SS/L and ChinaSat
provided mutual releases in respect of any liability under the
original contract and ChinaSat agreed to withdraw all claims
filed against SS/L and its affiliates in their bankruptcy
proceedings.
In 1999, as part of its discussions with ChinaSat over the delay
in delivery of the ChinaSat 8 satellite, we agreed to provide to
ChinaSat usage rights to one Ku-band and two C-band transponders
on our Telstar 10 satellite for the life of the satellite. As
part of the terms of the overall settlement reached in February
2005, ChinaSat agreed to relinquish its rights in the two C-band
transponders on the Telstar 10 satellite, in exchange for rights
to use two Ku-band transponders - one on Telstar 10 for the life
of the satellite and another on Telstar 18 for the life of the
Telstar 10 satellite plus two years. This transponder
arrangement was also approved by the Bankruptcy Court in April
2005.
SS/L has entered into several long-term launch services
agreements with various launch providers to secure future
launches for its customers, including Loral and its affiliates.
SS/L had launch services agreements with International Launch
Services ("ILS") which covered a number of launches, three of
which remained open. In November 2002, SS/L elected to terminate
one of those future launches, which had a termination liability
equal to SS/L's deposit of $5 million. Subsequently, SS/L
received a letter from ILS alleging SS/L's breach of the
agreements and purporting to terminate the launch service
agreements and all remaining launches. Despite ILS's wrongful
termination of the agreements and all remaining launches, to
protect its interest, SS/L also terminated a second launch,
which had a termination liability equal to its deposit of $5
million, but reserved all of its rights against ILS. As a
result, SS/L recognized a non-cash charge to earnings of $10
million in the fourth quarter of 2002 with respect to the two
terminated launches. In June 2003, to protect its interest, SS/L
also terminated a third launch, which had a termination
liability equal to $23.5 million, and SS/L recognized a non-cash
charge to earnings of $23.5 million in the second quarter of
2003 with respect to this launch. SS/L also reserved all of its
rights at that time. In April 2004, SS/L commenced an adversary
proceeding against ILS in the Bankruptcy Court to seek recovery
of $37.5 million of its deposits. In June 2004, ILS filed
counterclaims in the Bankruptcy Court, and, in January 2005, the
Bankruptcy Court dismissed two of ILS's four counterclaims. In
the two remaining counterclaims, ILS is seeking to recover
damages, in an unspecified amount, as a result of our alleged
failure to assign to ILS two satellite launches and $38 million
in lost revenue due to our alleged failure to comply with a
contractual obligation to assign to ILS the launch of another
satellite. We believe that ILS's counterclaims are without merit
and intend to defend against them vigorously and will continue
to seek recovery of SS/L's deposits. We do not believe that this
matter will have a material adverse effect on our consolidated
financial position or results of operations, although no
assurance can be provided.
We have estimated that we will incur approximately $47 million
to repair a satellite that was damaged in transit, a significant
portion of which we expect to recover through insurance
coverage. We believe resolution of the insurance claim will not
have a material adverse effect on our consolidated financial
position or our results of operations, although no assurance can
be provided.
On October 21, 2002, National Telecom of India Ltd.("Natelco")
filed suit against Loral and a subsidiary in the United States
District Court for the Southern District of New York. The suit
relates to a joint venture agreement entered into in 1998
between Natelco and ONS Mauritius, Ltd., a Loral Orion
subsidiary, the effectiveness of which was subject to express
conditions precedent. In 1999, ONS Mauritius had notified
Natelco that Natelco had failed to satisfy those conditions
precedent. In Natelco's amended complaint filed in March 2003,
Natelco has alleged wrongful termination of the joint venture
agreement, has asserted claims for breach of contract and fraud
in the inducement and is seeking damages and expenses in the
amount of $97 million. We believe that the claims are without
merit and intend to vigorously defend against them. As a result
of the commencement of the Chapter 11 Cases, this lawsuit is
subject to the automatic stay and further proceedings in the
matter have been suspended.
Lawsuits against our Directors and Officers
In August 2003, plaintiffs Robert Beleson and Harvey Matcovsky
filed a purported class action complaint against Bernard
Schwartz in the United States District Court for the Southern
District of New York. The complaint alleges (a) that Mr.
Schwartz violated Section 10(b) of the Securities Exchange Act
of 1934 (the "Exchange Act") and Rule 10b-5 promulgated
thereunder, by making material misstatements or failing to state
material facts about our financial condition relating to the
sale of assets to Intelsat and Loral's Chapter 11 filing and (b)
that Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the Exchange
Act as an alleged "controlling person" of Loral. The class of
plaintiffs on whose behalf the lawsuit has been asserted
consists of all buyers of Loral common stock during the period
from June 30, 2003 through July 15, 2003, excluding the
defendant and certain persons related to or affiliated with him.
In November 2003, three other complaints against Mr. Schwartz
with substantially similar allegations were consolidated into
the Beleson case. In February 2004, a motion to dismiss the
complaint in its entirety was denied by the court. Defendant
filed an answer in March 2004, and discovery has commenced and
is ongoing.
In November 2003, plaintiffs Tony Christ, individually and as
custodian for Brian and Katelyn Christ, Casey Crawford, Thomas
Orndorff and Marvin Rich, filed a purported class action
complaint against Bernard Schwartz and Richard J. Townsend in
the United States District Court for the Southern District of
New York. The complaint alleges (a) that defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder, by making material misstatements or failing to state
material facts about Loral's financial condition relating to the
restatement in 2003 of the financial statements for the second
and third quarters of 2002 to correct accounting for certain
general and administrative expenses and the alleged improper
accounting for a satellite transaction with APT Satellite
Company Ltd. and (b) that each of the defendants is secondarily
liable for these alleged misstatements and omissions under
Section 20(a) of the Exchange Act as an alleged "controlling
person" of Loral. The class of plaintiffs on whose behalf the
lawsuit has been asserted consists of all buyers of Loral common
stock during the period from July 31, 2002 through June 29,
2003, excluding the defendants and certain persons related to or
affiliated with them. In October 2004, a motion to dismiss the
complaint in its entirety was denied by the court. Defendants
filed an answer to the complaint in December 2004, and discovery
has commenced.
In April 2004, two separate purported class action lawsuits
filed in the United States District Court for the Southern
District of New York by former Loral employees and participants
in the Loral Savings Plan (the "Savings Plan") were consolidated
into one action titled In re: Loral Space ERISA Litigation. In
July 2004, plaintiffs in the consolidated action filed an
amended consolidated complaint against the members of the Loral
Space & Communications Ltd. Savings Plan Administrative
Committee and certain existing and former members of the Board
of Directors of SS/L, including Bernard L. Schwartz. The amended
complaint alleges (a) that defendants violated Section 404 of
the Employee Retirement Income Security Act ("ERISA"), by
breaching their fiduciary duties to prudently and loyally manage
the assets of the Savings Plan by including Loral common stock
as an investment alternative and by providing matching
contributions under the Savings
Plan in Loral stock, (b) that the director defendants violated
Section 404 of ERISA by breaching their fiduciary duties to
monitor the committee defendants and to provide them with
accurate information, (c) that defendants violated Sections 404
and 405 of ERISA by failing to provide complete and accurate
information to Savings Plan participants and beneficiaries, and
(d) that defendants violated Sections 404 and 405 of ERISA by
breaching their fiduciary duties to avoid conflicts of interest.
The class of plaintiffs on whose behalf the lawsuit has been
asserted consists of all participants in or beneficiaries of the
Savings Plan at any time between November 4, 1999 and the
present and whose accounts included investments in Loral stock.
In October 2004, defendants filed a motion to dismiss the
amended complaint in its entirety which is pending before the
court.
In addition, two insurers under our directors and officers
liability insurance policies have denied coverage with respect
to the case titled In re: Loral Space ERISA Litigation , each
claiming that coverage should be provided under the other's
policy. In December 2004, one of the defendants in that case
filed a lawsuit in the United States District Court for the
Southern District of New York seeking a declaratory judgment as
to his right to receive coverage under the policies. In March
2005 the insurers filed answers to the complaint and one of the
insurers filed a cross claim against the other insurer which
such insurer answered in April 2005. Discovery has commenced and
is ongoing.
Other
In March 2001, Loral entered into an agreement (the "Sale
Agreement") with Rainbow DBS Holdings, Inc. ("Rainbow") pursuant
to which Loral agreed to sell to Rainbow its interest in R/L DBS
Company, LLC ("R/L DBS") for a purchase price of $33 million
(plus interest at 8% from April 1, 2001). Loral's receipt of the
purchase price is, however, contingent on the occurrence of
certain events, including the sale of substantially all of the
assets of R/L DBS. At the time of the Sale Agreement, Loral's
investment in R/L DBS had been recorded at zero and Loral did
not record a receivable or gain from this sale. During the
quarter ended March 31, 2005, Rainbow entered into an agreement
to sell its Rainbow 1 satellite and related assets to EchoStar
Communications Corporation, which sale, if consummated, would
result in Loral's realization of the proceeds from the Sale
Agreement. Rainbow's sale transaction with EchoStar is, however,
subject to various closing conditions, including receipt of
regulatory approval. Loral will not receive any payment unless
and until such sale transaction is consummated. There can be no
assurance that Rainbow's transaction with EchoStar will be
consummated. Moreover, upon receipt by Loral of some or all of
the purchase price from Rainbow, a third party would have a
prepetition claim against Loral of up to $3 million.
We are subject to various other legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course
of business. Although the outcome of these claims cannot be
predicted with certainty, we do not believe that any of these
other existing legal matters will have a material adverse effect
on our consolidated financial position or our results of
operations. These claims against us are generally subject to the
automatic stay as a result of the commencement of the Chapter 11
Cases.
Globalstar Related Matters
On September 26, 2001, the nineteen separate purported class
action lawsuits filed in the United States District Court for
the Southern District of New York by various holders of
securities of Globalstar Telecommunications Limited ("GTL") and
Globalstar against GTL, Loral, Bernard L. Schwartz and other
defendants were consolidated into one action titled In re:
Globalstar Securities Litigation. In November 2001, plaintiffs
in the consolidated action filed a consolidated amended class
action complaint against Globalstar, GTL, Globalstar Capital
Corporation, Loral and Bernard L. Schwartz alleging (a) that all
defendants (except Loral) violated Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about
Globalstar's business and prospects, (b) that defendants Loral
and Mr. Schwartz are secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the Exchange
Act as alleged "controlling persons" of Globalstar, (c) that
defendants GTL and Mr. Schwartz are liable under Section 11 of
the Securities Act of 1933 (the "Securities Act") for untrue
statements of material facts in or omissions of material facts
from a registration statement relating to the sale of shares of
GTL common stock in January 2000, (d) that defendant GTL is
liable under Section 12(2)(a) of the Securities Act for untrue
statements of material facts in or omissions of material facts
from a prospectus and prospectus supplement relating to the sale
of shares of GTL common stock in January 2000, and (e) that
defendants Loral and Mr. Schwartz are secondarily liable under
Section 15 of the Securities Act for GTL's primary violations of
Sections 11 and 12(2)(a) of the Securities Act as alleged
"controlling persons" of GTL. The class of plaintiffs on whose
behalf the lawsuit has been asserted consists of all buyers of
securities of Globalstar, Globalstar Capital and GTL during the
period from December 6, 1999 through October 27, 2000, excluding
the defendants and certain persons related to or affiliated with
them. We believe that we have meritorious defenses to this class
action lawsuit and intend to pursue them vigorously. As a result
of the commencement of the Chapter 11 Cases, however, this
lawsuit is subject to the automatic stay and further proceedings
in the matter have been suspended insofar as Loral is concerned
but are proceeding as to Mr. Schwartz. In December 2003, a
motion to dismiss the amended complaint in its entirety was
denied by the court insofar as GTL and Mr. Schwartz are
concerned. In December 2004, plaintiffs' motion for
certification of the class was granted. Trial of this case has
been scheduled for July 2005. In June 2004, Globalstar was
dissolved, and in October 2004, GTL was liquidated pursuant to
chapter 7 of the Bankruptcy Code.
On March 2, 2002, the seven separate purported class action
lawsuits filed in the United States District Court for the
Southern District of New York by various holders of Loral common
stock against Loral, Bernard L. Schwartz and Richard J. Townsend
were consolidated into one action titled In re: Loral Space &
Communications Ltd. Securities Litigation. On May 6, 2002,
plaintiffs in the consolidated action filed a consolidated
amended class action complaint alleging (a) that all defendants
violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, by making material misstatements or
failing to state material facts about Loral's financial
condition and its investment in Globalstar and (b) that Mr.
Schwartz is secondarily liable for these alleged misstatements
and omissions under Section 20(a) of the Exchange Act as an
alleged "controlling person" of Loral. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
buyers of Loral common stock during the period from November 4,
1999 through February 1, 2001, excluding the defendants and
certain persons related to or affiliated with them. After oral
argument on a motion to dismiss filed by Loral and Messrs.
Schwartz and Townsend, in June 2003, the plaintiffs filed an
amended complaint alleging essentially the same claims as in the
original amended complaint. In February 2004, a motion to
dismiss the amended complaint was granted by the court insofar
as Messrs. Schwartz and Townsend are concerned. Loral believes
that it has meritorious defenses to this class action lawsuit
and intends to pursue them vigorously. As a result of the
commencement of the Chapter 11 Cases, however, this lawsuit is
subject to the automatic stay, and further proceedings in the
matter have been suspended, insofar as Loral is concerned but
are proceeding as to the other defendants.
In addition, the primary insurer under our directors and
officers liability insurance policy has denied coverage under
the policy for the In re: Loral Space & Communications Ltd.
Securities Litigation case and, on March 24, 2003, filed a
lawsuit in the Supreme Court of New York County seeking a
declaratory judgment upholding its coverage position. In May
2003, we and the other defendants served our answer and filed
counterclaims seeking a declaration that the insurer is
obligated to provide coverage and damages for breach of contract
and the implied covenant of good faith. In May 2003, we and the
other defendants also filed a third party complaint against the
excess insurers seeking a declaration that they are obligated to
provide coverage. We believe that the insurers have wrongfully
denied coverage and intend to defend against the denial
vigorously. As a result of the commencement of the Chapter 11
Cases, however, this lawsuit is subject to the automatic stay
and further proceedings in the matter have been suspended
insofar as we are concerned but are proceeding as to the other
defendants.
We are obligated, subject to the effects of the Chapter 11
Cases, to indemnify our directors and officers for any losses or
costs they may incur as a result of the lawsuits described above
in Lawsuits against our Directors and Officers and in Globalstar
Related Matters. The Plan of Reorganization provides that our
liability post-emergence in respect of such indemnity obligation
is limited to the In re: Loral Space ERISA Litigation and In
re: Loral Space & Communications Ltd. Securities Litigation
cases in an aggregate amount of $2.5 million.
The Plan of Reorganization does not provide for recovery for
claims arising from the rescission of, or damages arising from,
the purchase or sale of any security of the Debtors and their
affiliates, including the claims described above.
Loss Per Share
Basic loss per share is computed based upon the weighted average
number of shares of common stock outstanding. Diluted loss per
share excludes the assumed conversion of the Series C Preferred
Stock (936,371 shares) and the Series D Preferred Stock (185,104
shares), as their effect would have been antidilutive. For the
three months ended March 31, 2005 and 2004, there were 2,002,870
and 2,387,213 options, respectively, outstanding that were
excluded from the calculation of diluted loss per share. In
addition, for the three months ended March 31, 2005 and 2004,
there were 617,226 and 604,299 warrants, respectively,
outstanding that were excluded from the calculation of diluted
loss per share as their effect would have been antidilutive.
Segments
We are organized into two operating segments: Satellite Services
and Satellite Manufacturing.
The common definition of EBITDA is "Earnings Before Interest,
Taxes, Depreciation and Amortization". In evaluating financial
performance, we use revenues and operating income (loss) from
continuing operations before depreciation and amortization,
including amortization of unearned stock compensation, and
reorganization expenses due to bankruptcy ("Adjusted EBITDA") as
the measure of a segment's profit or loss. Adjusted EBITDA is
equivalent to the common definition of EBITDA before
amortization of stock compensation; reorganization expenses due
to bankruptcy; gain (loss) on investments; other income
(expense); equity in net income (losses) of affiliates, net of
tax; minority interest, net of tax; income (loss) from
discontinued operations, net of taxes; cumulative effect of
change in accounting principle, net of tax; and extraordinary
gain on acquisition of minority interest, net of tax. Interest
expense has been excluded from Adjusted EBITDA to maintain
comparability with the performance of competitors using similar
measures with different capital structures. During the period we
are in Chapter 11, we only recognize interest expense on the
actual interest payments we make. During this period, we do not
expect to make any further interest payments on our debt
obligations after March 17, 2004, the date we repaid our secured
bank debt. Reorganization expenses due to bankruptcy are only
incurred during the period we are in Chapter 11. These expenses
have been excluded from Adjusted EBITDA to maintain
comparability with our results during periods we are not in
Chapter 11 and with the results of competitors using similar
measures. Adjusted EBITDA should be used in conjunction with
U.S. GAAP financial measures and is not presented as an
alternative to cash flow from operations as a measure of our
liquidity or as an alternative to net income as an indicator of
our operating performance.
We believe the use of Adjusted EBITDA along with U.S. GAAP
financial measures enhances the understanding of our operating
results and is useful to investors in comparing performance with
competitors, estimating enterprise value and making investment
decisions. Adjusted EBITDA allows investors to compare operating
results of competitors exclusive of depreciation and
amortization, net losses of affiliates and minority interest.
Adjusted EBITDA is a useful tool given the significant variation
that can result from the timing of capital expenditures, the
amount of intangible assets recorded, the differences in assets'
lives, the timing and amount of investments, and effects of
investments not managed by us. Adjusted EBITDA as used here may
not be comparable to similarly titled measures reported by
competitors. We also use Adjusted EBITDA to evaluate operating
performance of our segments, to allocate resources and capital
to such segments, to measure performance for incentive
compensation programs, and to evaluate future growth
opportunities.
Intersegment revenues primarily consists of satellites under
construction by Satellite Manufacturing for Satellite Services
and the leasing of transponder capacity by Satellite
Manufacturing from Satellite Services.
Financial Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries
Loral (the "Parent Company") is a holding company, which is the
ultimate parent of all of our subsidiaries. The 10% senior notes
issued by Loral Orion (the "Subsidiary Issuer"), our wholly
owned subsidiary, in an exchange offer are fully and
unconditionally guaranteed, on a joint and several basis, by the
Parent Company and several of Loral Orion's wholly-owned
subsidiaries (the "Guarantor Subsidiaries"). The Parent Company,
the Subsidiary Issuer and the Guarantor Subsidiaries, as well as
certain other non-guarantor subsidiaries of the Parent Company
(including the Loral SpaceCom and SS/L) filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy
Code on July 15, 2003.
We use the terms "Loral," the "Company," "we," "our," and "us"
in this report to refer to Loral Space & Communications Ltd. and
its subsidiaries. When we use the term "Loral Skynet" or
"Skynet", we are, unless the context provides otherwise,
referring to our entire satellite services business, the assets
of which are held in various companies.
CONTACT: Loral Space & Communications Ltd.
600 Third Ave.
New York, NY 10016
USA
Phone: 212-697-1105
Web site: http://www.loral.com
SEA CONTAINERS: Cuts YoY Net Loss by 60% in 1Q05
------------------------------------------------
Sea Containers Ltd. (NYSE: SCRA and SCRB), passenger and freight
transport operator, marine container lessor and manufacturer,
and leisure industry investor, announced Wednesday its results
for the first quarter ended March 31, 2005. The net loss for the
period was $6.8 million (loss of $0.26 per common share diluted)
on revenue of $382 million, compared with a net loss of $16.9
million ($0.73 per common share diluted) on revenue of $373
million in the prior year.
The quarter benefited from a gain of $41 million from the sale
of shares in Orient-Express Hotels, however, there were non-
recurring charges of $9 million in connection with the
settlement with the Strategic Rail Authority in the U.K. related
to the rail franchise which expired on April 30, 2005. A new 10
year franchise commenced on May 1, 2005 and no further non-
recurring charges with respect to the expired franchise are
anticipated. The company also incurred closure costs of its
Irish Sea fast ferry service of $3 million and a loss on sale of
containers of $1.2 million. It also established a charge of $2.5
million related to the dispute with GE Capital, however, it is
expected this amount will be recovered through arbitration.
The first quarter is normally a loss-making period because of
seasonal losses in the company's ferry businesses. Those losses
were greater in this year's first quarter than in last year's,
due in the case of Silja Line primarily to the lay-up of the
m.v. Finnjet representing an adverse variance of $4 million and
a recognition in this year's first quarter of $4 million of
costs which were previously phased to later quarters. Silja's
fuel costs on a like for like basis were $2.1 million higher
than in the first quarter of 2004.
The fast ferry fleet incurred $2.3 million more refit costs in
the period than last year and $0.4 million additional fuel
costs.
The Rail Division earnings excluding the non-recurring charge of
$9 million were $14.2 million compared with $11 million in the
year earlier period. This division performed better than
budgeted, indicating strong underlying demand for GNER's rail
services. From May, 2005 the new franchise came into force which
initially will result in a reduction in profitability of about
one third using the base case assumptions in the franchise plan,
however, revenue growth should allow profits to rise to old
franchise levels and better. If revenue is higher than in the
base case assumptions, GNER's profits will be higher.
The company's share of GE SeaCo profits rose to $7.3 million
from $6.8 million in the prior year period, while profits from
manufacturing, depots, service operations and logistics declined
to $1.7 million from $2.7 million.
The Corinth Canal, fruit farming and publishing reported a $1.3
million loss compared with a loss of $1 million in the prior
year period.
No conclusion should be drawn from the modest decline in
earnings from other container activities or other businesses as
the variances are due largely to seasonal or exceptional
factors. All these businesses are performing satisfactorily.
The company's investment in Orient-Express Hotels Ltd. is
accounted for on the equity basis which represented a $0.9
million loss in the period compared with a $1.9 million loss in
the year earlier period. That company also is generally loss
making in the first quarter and the loss was substantially lower
this year than last. Sea Containers owns 9.9 million shares in
Orient-Express Hotels which have a current market value of about
$260 million and represent 25% of Orient-Express Hotels' equity.
The earnings outlook for that company is positive.
Net finance costs in the period were $21.1 million,
approximately the same as the $20.7 million reported in the year
earlier period. While interest costs are rising on the company's
$178 million of floating rate U.S. dollar debt, the bulk of its
dollar debt is fixed rate ($556 million). The company's primary
debt obligations are in floating rate euros where the interest
rates are lower than for floating rate U.S. dollars. Many
observers expect the widening interest rate differential to
cause a strengthening of the dollar against the euro later in
the year, thus the company feels it is prudent to remain
borrowed substantially in euros.
The company is currently un-hedged for its forward fuel
requirements, although it was hedged for part of its first
quarter consumption. Fuel prices are under constant review by
the ferries division management and hedges are arranged when
they feel the risk/reward relationship justifies them.
Mr James B Sherwood, President, said that the poor performance
of the ferry division was receiving the close attention of
management, however, it will not be possible to turn around the
business significantly until 2006 and further non-recurring
charges are likely to be required in the process.
The new Aegean Speedlines service employing one of the company's
SeaCats will commence operations on May 19th. This will be the
first non-Greek flag vessel to be employed in the domestic
trades of Greece and if the operation is successful, other fast
ferries of the company will be deployed to Greek waters in 2006.
A third, large fast ferry, not owned by the company, will be
chartered in for operation in the SNAV-Hoverspeed fast ferry
service between Italy and Croatia this season. A new route
between Ancona and Zadar will be opened this year using one of
the company's SeaCats within the SNAV-Hoverspeed joint venture.
Mr Sherwood commented on the container leasing business by
saying that GE SeaCo had acquired $49 million of new containers
in the first quarter of this year and was now targeting about
$150 million for the entire year. Current utilization of the GE
SeaCo-owned container fleet is 98% and utilization of the "pool"
fleet owned by GE Capital and Sea Containers is 90%. Seasonal
demand for refrigerated containers, which reaches its peak in
the northern hemisphere winter, has been excellent this winter
while demand for standard dry containers, largely driven by Far
East exports, has been less strong in this year's first quarter
than last year, however, generally speaking the market is
robust.
Mr Sherwood indicated that the dispute with GE Capital over GE
SeaCo's costs continues. Sea Containers has obtained a temporary
restraining order against GE Capital preventing the termination
of the services agreement, and is seeking an injunction
extending the order pending resolution of the dispute by
arbitration. The essence of the dispute is that GE Capital is
trying to force Sea Containers to absorb certain costs of GE
SeaCo in order to increase GE SeaCo's profitability at Sea
Containers' expense. Sea Containers is insisting that the
parties be bound by the terms of the agreements.
Mr Sherwood concluded by saying that he, the chief financial
officer and the divisional senior vice presidents would be
making their annual investor presentation at '21' Club in New
York City on Thursday, June 9 at noon. Investors wishing to
attend should contact W. W. Galvin of The Galvin Partnership on
telephone: +1-203-618-9800 fax: +1-203-618-1010, e-mail:
wwg@galvinpartners.com
Management believes that EBITDA (net earnings adjusted for net
finance costs, tax, depreciation, amortization and the
investment in Orient-Express Hotels and other equity investees)
is a useful measure of operating performance, to help determine
the ability to incur capital expenditure or service
indebtedness, because it is not affected by non-operating
factors such as leverage and the historic cost of assets.
However, EBITDA does not represent cash flow from operations as
defined by U.S. generally accepted accounting principles, is not
necessarily indicative of cash available to fund all cash flow
needs and should not be considered as an alternative to earnings
from operations under U.S. generally accepted accounting
principles for purposes of evaluating results of operations.
To see financial statements:
http://bankrupt.com/misc/Sea_Containers.htm
CONTACT: Sea Containers Ltd.
William W. Galvin
+1-203-618-9800
URL: www.seacontainers.com
===========
B R A Z I L
===========
BEC: Government Qualifies 4 Banks in Privatization Process
----------------------------------------------------------
The Brazilian government eases the way for the privatization of
Banco do Estado de Ceara with the pre-qualification of four of
the country's largest banks to the planned auction. The pre-
qualified institutions, Banco Bradesco (BBD), GE Capital, Banco
Itau (ITU) and Unibanco (UBB) will have access to the bank's
data room to provide them with information for the upcoming bid.
Dow Jones Newswires reports that BEC, one of the three remaining
government-owned banks in Brazil, administers assets valued at
BRL1.6 billion. The bank's 70 branches serve an estimated
278,000 clients.
The Brazilian Central bank says that information on the tender,
including date and reserve price, will be announced soon.
CSN: S&P Details Basis for Current Ratings, Stable Outlook
----------------------------------------------------------
Rationale
The local-currency rating on Brazil's flat carbon steel maker
Companhia Sider£rgica Nacional (CSN) reflects the company's
exposure to volatile demand and price cycles, both domestically
and globally; increasing competition in its home and predominant
market of Brazil; an aggressive dividend policy and capital
investment plan; and a sizable, rising gross debt profile. These
risks are partly offset by CSN's privileged cost position and
sound operating profile; a favorable market position in Brazil;
strong export capabilities to offset occasional domestic demand
sluggishness; and increasing business diversification, deriving
from the expansion into the more stable iron ore business within
the next couple of years. Resilient free operating cash flows
and large cash reserves are also key short-term mitigating
factors.
CSN is among the lowest-cost steel producers in the world, which
is a result of its access to proprietary, high-quality iron ore,
self-sufficiency in energy, streamlined facilities, and
logistics advantages, all coupled with a strong market position
in the fairly concentrated steel industry in Brazil
(approximately 33% as of March 2005). In first-quarter 2005, 75%
of CSN's production was destined to domestic market, which has
been growing after years of sluggishness (boosted by export
activity by CSN's auto clients and others); export performance
has been mixed, due to the weakening of both Europe and U.S.
markets, but CSN still benefited from the avid demand for steel
in Asia, where prices remain strong. While rising stocks in
Europe and the U.S. and the threat of a reduction in Chinese net
imports are relevant medium-term concerns, CSN is expected to
perform substantially better than its international peers due to
its cost position over the next several quarters. With raw
materials such as coking coal and iron ore affecting the cost
matrix of most integrated steel makers around the world, CSN
should increase its advantage due to its proprietary iron ore
reserves (whose expansion is under way and incremental
production will be sold under long-term contracts, such as the
one recently closed with Companhia Vale do Rio Doce - CVRD). In
any event, while a decline in average coke price in 2005 should
alleviate current cost pressures within the next few quarters
(considering that some of the inventories of 2004 that have been
expensed in the quarter were quite expensive), the relevance of
coal and coking coal in CSN's own cost matrix should remain high
in 2005 (with coke and coal accounting together for 35% of total
costs in first-quarter 2005, vis-.-vis 23% in the same period of
last year).
The company's results in first-quarter 2005 remained sound.
Rising coal prices were offset by a decrease in the average cost
of coking coal, higher domestic sales, and the foreign currency
rate appreciation. With an EBITDA margin hovering at about 45%
and steel prices projected to remain at fairly higher levels
than the last trough at least over 2005 (as other integrated
steel makers, but not CSN, will suffer with higher iron ore
cost), CSN should continue performing well and reporting strong
credit measures. As calculated by Standard & Poor's, CSN's
EBITDA margin reached a high 48% in first-quarter 2005 boosted
by a better product mix (with cold-rolled and galvanized steel
growing up), but this is also influenced by the fact that CSN
started "pro-rata" consolidating two of its minority-stake
subsidiaries, MRS LogĦstica and It Energ,tica. EBITDA interest
coverage and funds from operations (FFO) to adjusted total debt
were at 4.8x and 32.6% in the last 12 months ended March 31,
2005, stronger than both December 2004 and the average for last
year. Nevertheless, we do highlight the risk of a rapid
deterioration in financial ratios if steel prices decline
steeply, in particular on a gross basis, considering that the
company has taken on further debts in 2004 and 2005. Total gross
debt, adjusted for debt at CSN's controlling shareholder
(Vicunha Siderurgia) and pension liabilities, amounted to nearly
$4.51 billion ($4.22 billion in December 2004) and has been
going up sequentially in the past several quarters (although in
first-quarter 2005 it was also affected by the pro-rata
consolidation of MRS and Itasa). We acknowledge that CSN's
robust cash reserves of $2.3 billion in March 2005 are a
relevant short-term mitigating factor, but we also emphasize the
company's vocal acquisitive and expansion-oriented strategy (in
particular, an important new furnace at Volta Redonda or a brand
new steel mill in ItaguaĦ) and an aggressive dividend policy,
which eventually may reduce liquidity somewhat in the future.
CSN's direct holding company, Vicunha Siderurgia, as well as
upper layers of ownership of the group, have gone through some
important changes in first-quarter 2005. First, in April 2005,
the Brazilian Development Bank (BNDES) exercised its right to
exchange Vicunha's sixth debentures for CSN's shares; as a
result, Vicunha's stake in CSN has been reduced to approximately
42.6% from the previous 46.5%, and Vicunha's debt was reduced by
some $167 million. Second, CSN's dividend distribution to be
paid until June 2005 should also reduce Vicunha's debt further
by some $360 million by mid-2005. Third, Vicunha announced on
April 29, 2005 that it is going to prepay all remaining
debenture tranches until June 2005. On the other hand, at higher
levels in the company's ownership structure, the Steinbruch
family has agreed to take its partner over through a private
agreement, suggesting that despite lower cash requirements at
Vicunha's level, CSN's dividend policy will remain aggressive
going forward.
Liquidity
CSN's liquidity has been an important short-term factor to
mitigate the company's increasing gross debt position and
persistently high short-term debt maturities. Cash reserves of
$2.3 billion as of March 2005 are exceptionally high (having
averaged about $1.1 billion in 2004), but approximately $850
million is earmarked for dividend distribution in June. Still,
remaining cash reserves should more than cover short-term debt
maturities in the next 12 months of $1.1 billion. CSN's rising
cash reserves in 2005 were originated thanks to both internal
cash generation (with free operating cash flow strengthened by a
decline in inventories in first-quarter 2005) and an active
presence in international capital and banking markets (reflected
in the increasing gross debt balance). We still expect some
reduction in debt balances through 2005, but at a gradual pace.
As a consequence, high gross debt balances should continue
translating accordingly into high interest burden. Refinancing
risk is mild. There is some debt concentration in 2005, 2008,
and 2013, as all bonds have bullet maturities. For 2005, there
is still $150 million coming due in July; by the end of 2006,
CSN faces the maturity of local debentures in a total of BrR650
million (some $244 million at the current exchange rate).
Capital commitments for the next few years include the expansion
of the Casa de Pedra iron ore mine for up to $812 million
(including a pelletizing facility), investments in the Sepetiba
port, and a new cement plant. Maintenance capital expenditures
to sustain the level of operations at CSN's Presidente Vargas
steel mill should average less than $150 million annually. The
company is expected to reach adequate long-term financing to
fund a portion of programmed investments, while the remainder
will likely be financed with internal cash generation, as we
still expect strong FFO for the next several quarters due to the
favorable fundamentals. The potential impact of an expansion of
CSN's steel production has not been incorporated in the
analysis, but it would be significant if effectively undertaken.
Outlook
The stable outlook on CSN's local-currency corporate credit
rating reflects our expectations that CSN will manage to
preserve strong liquidity in the future thanks to its robust
cash generation and despite capital commitments already
announced. The outlook also assumes that CSN will be able to
maintain sound operating results through the steel cycle thanks
to its favorable cost position and access to steel export
markets. The rating could come under downward pressure if a
continuing increase of gross debt leads to financial metrics
that are not consistent with the rating category. Acquisitions
or further capital commitments that could potentially hurt the
company's current liquidity condition or add financial leverage
were not assumed and may equally lead to a negative revision of
the ratings or outlook. On the other hand, strengthening results
to levels not factored yet or a more conservative financial
stance (essentially deriving from lower total gross debt
balances and lower exposure to short-term debt) could lead to a
positive revision of the ratings or outlook in the medium term.
However, this scenario is seen as unlikely considering the
company's significant capital and dividend commitments already
scheduled for the near future.
Primary Credit Analyst: Reginaldo Takara, Sao Paulo (55) 11-
5501-8932; reginaldo_takara@standardandpoors.com
Secondary Credit Analyst: Milena Zaniboni, Sao Paulo (55)
11-5501-8945; milena_zaniboni@standardandpoors.com
CSN: Targets CVRD's Stakes in Steel Companies
---------------------------------------------
Companhia Siderurgica Nacional (CSN), Brazil's largest flat-
steel producer (NYSE: SID), is looking to make an offer for Rio
de Janeiro-based mining and transport giant CVRD's (NYSE: RIO)
stakes in two steel companies, Gazeta Mercantil reports, citing
CSN investor relations director Lauro Resende.
The companies in question are California Steel, in which CVRD
holds a 50% stake, and Belo Horizonte-based Usiminas, in which
CVRD holds 23% of the voting capital.
Resende's comments came after CVRD finance director Fabio de
Oliveira Barbosa hinted at a possible sale of CVRD's holding in
Usiminas. But CVRD appeared to be less enthusiastic about
divesting its stake in California Steel as the unit allows
access to the North American market.
Meanwhile, CSN chief executive, Benjamin Steinbruch, said CSN is
looking for a medium-sized steel company in Europe, similar to
Austria's Voestalpine AG, Germany's Salzgitter AGand Italy's
Riva. However, he said these companies aren't necessarily
acquisition targets.
CONTACT: Mr. Marcos Leite Ferreira
CSN - Investor Relations
Phone: (55 11) 3049-7591
E-mail: marcos.ferreira@csn.com.br
Web site: http://www.csn.com.br/
CSN: Bear Stearns Upgrades Stock Recommendation
-----------------------------------------------
Investment House Bear Stearns raised Wednesday its
recommendation on CSN stock to peer perform from underperform,
saying the Company is "more defensive" than most global
steelmakers amid an uncertain period for steel equities.
In a research note, Bear Stearns stressed that higher coal and
coke prices are already mostly reflected in the Company's
numbers.
"The 25% pullback in the (CSN) shares from its dividend-adjusted
highs has removed our overvaluation concerns," said Bear
Stearns, but added that it still sees better options for
investors wanting to buy steel stocks.
Bear Stearns' year-end price target on CSN remains at US$23.50.
USIMINAS: Reports 179% Net Income Growth in 1Q05
------------------------------------------------
Usinas Siderurgicas de Minas Gerais S/A -- USIMINAS (OTC
Bulletin Board: USNZY) (Bovespa: USIM3 USIM5 USIM6) announced
today its first quarter 2005 (1Q05) results. Operational and
financial information for the Company, except where otherwise
indicated, is presented based on consolidated data in Brazilian
reais in accordance with Brazilian Corporate Law. All
comparisons made in this release take into consideration the
same period in 2004 (1Q04), except when specified differently.
"First quarter 2005 results were favored by the good domestic
market conditions for flat steel. However, they also reflect the
strategy adopted over recent years to consolidate the Usiminas
System into a privileged position in the global steel industry.
The solid operational performance of the System's companies
resulted in superior financial performance, maintaining the
trend set in previous quarters. In spite of the increase in the
basic interest rate and its impact on industrial activity, the
Brazilian flat steel market was sustained by good performance in
several important segments of the economy, such as the auto
industry, auto parts, domestic appliances and those sectors
related to long-term export programs.
In the international markets, the U.S. and Europe are facing
high inventory levels, which have triggered a slight decline in
prices. On the other hand, demand continues strong in Asia,
influenced by the Chinese economy. In this context of challenges
and opportunities, where agility and management capability are
important differentials to add value, we achieved net sales of
R$ 3.46 billion (46% growth), net income of R$ 1 billion (an
increase of 179%) and EBITDA of R$ 1.72 billion (record margin
of 50%). Our consolidated debt fell by US$ 214 million for the
quarter and the net debt/EBITDA ratio declined to 0.4, which
places us in a very comfortable position to assume new
investment commitments. The restructuring and eventual delisting
of Cosipa was an important step towards making the
organizational structure more efficient. This should contribute
to maximizing future results. We have now begun a new investment
cycle in projects that add value, reduce costs and modernize
equipment and are confident in our competitiveness and in our
ability to achieve high levels of profitability."
Rinaldo Campos Soares -- CEO
Highlights
R$ million Chg.
1Q05/1Q
1Q 2005 1Q 2004 4Q 2004 04
Total Sales Volume (000 t) 1,768 1,910 2,170 -7%
Net Revenues 3,459 2,365 3,809 46%
Gross Profit 1,731 932 1,752 86%
Operating Result (EBIT) a 1,563 777 1,589 101%
Financial Result (160) (253) (81) -37%
Net Income 1,001 358 1,127 179%
EBITDA b 1,724 921 1,816 87%
EBITDA (R$/t) 975 482 837 102%
Total Assets 17,510 15,799 16,981 11%
Net Debt 2,590 6,330 3,495 -59%
Stockholders' Equity 6,951 4,358 5,949 59%
(a) Earnings before interest, tax and participations.
(b) Earnings before interest, taxes, depreciation and
amortization and participations.
CONTACT: Usinas Siderurgicas de Minas Gerais S.A.
Bruno Seno Fusaro
Tel: +011-55-31-3499-8710
E-mail: brunofusaro@usiminas.com.br
FIRB -- Financial Investor Relations Brasil
Ligia Montagnani
Tel: +011-5511-3897-6405
E-mail: ligia.montagnani@firb.com
===============
C O L O M B I A
===============
* COLOMBIA: Fitch Affirms Ratings at 'BB', Outlook Stable
---------------------------------------------------------
Fitch Ratings, the international rating agency, has affirmed
Colombia's ratings as follows:
--Long-term foreign currency 'BB'; --Country ceiling 'BB'; --
Local currency 'BBB-'; --Short-term 'B'.
The Rating Outlook is Stable.
'Economic performance has continued on an improving trend over
the past two years and near-term prospects appear generally
sound, although external and election-related risks are
significant,' said Morgan C. Harting, Fitch Senior Director and
sovereign analyst for Colombia.
Growth has been supported by a favorable external environment
and by improvements in local business sentiment based in part on
perceptions of advances in the war against insurgent groups.
Currency appreciation has helped reduce general government debt
to 51% of GDP at end-2004. After narrowing to 2.7% 2004 from
3.9% of GDP in 2003 on higher tax revenues and local government
budget under-execution, the general government deficit is
expected to revert back to 3.9% of GDP this year because of
higher local government spending and deterioration in the social
security balance. Fitch expects the social security reform
legislation currently before Congress to be approved by June,
but this would not have an impact on cash imbalances before
2010.
According to Harting, 'it is clear that some portion of
Colombia's recent economic improvement is the result of
transitory positive shocks that will not be sustained over the
medium term. Higher oil prices, low international interest rates
and strong external demand have helped improve economic
performance, and we expect these conditions to revert toward
normal levels.'
Beyond the expectation of a somewhat less favorable external
environment going forward, there are also risks that local and
foreign sentiment may cool somewhat as the 2006 presidential and
legislative elections approach and uncertainty about whether
President Uribe may run for re-election continues. The somewhat
larger fiscal deficit target for this year may have to be
loosened further if political and external risks prove to have
been underestimated. Structural fiscal imbalances related to the
social security deficit, declining oil production and rising
transfers to local governments will make it difficult to reduce
shortfalls below current levels absent significant fiscal
reform. This appears unlikely before the elections and cannot be
assured afterward, either.
The Stable Outlook reflects the expectation that growth and
fiscal performance will be broadly sustained over the next two
years, supporting general stability in government debt and
gradual reductions in external debt. Creditworthiness could
improve on: substantial reductions in structural fiscal
imbalances; continued growth in investment to support higher
potential output; and sustained, strong export performance. The
credit could come under pressure, on the other hand, if fiscal
performance should deteriorate beyond current expectations and
if Colombia reverts back to a prolonged slow-growth path.
Significant deterioration in monetary and exchange rate
stability could also increase credit risk.
===================================
D O M I N I C A N R E P U B L I C
===================================
* DOMINICAN REPUBLIC: Fitch Rates New Bonds 'B-' Pending Reforms
----------------------------------------------------------------
Fitch Ratings, the international rating agency, has assigned
long-term foreign currency ratings to the new bonds issued by
the Dominican Republic as a result of its debt exchange of 'B-'.
Approximately US$456 million aggregate amount of 9.50%
amortizing bonds due 2011 and US$574 million aggregate amount of
9.04% amortizing bonds due 2018 are affected by this rating
action. Should the Dominican authorities meet the performance
criteria included in the country's International Monetary Fund
(IMF) program and pursue sound macroeconomic policies,
multilateral financing should be assured and the government's
liquidity position would remain stable. With this as a backdrop,
Fitch would consider a Positive Outlook or even an upgrade of
the ratings in the medium-term.
Fitch deemed the exchange offer to be a distressed debt exchange
and downgraded the eligible bonds and the long-term foreign
currency issuer rating to 'DDD' on 5 May 2005. If the government
is committed to servicing the eligible bonds not extinguished
with the exchange on time and in full, the default ratings will
be removed on 6 June 2005. As local currency obligations were
excluded from the debt exchange and the government's liquidity
position has improved as a result of the exchange, the long-term
local currency (Dominican peso) rating has been upgraded to 'B'
from 'CCC+'. Following the rating action, the Rating Outlook is
Stable. Similarly, the Dominican Republic's country ceiling has
been upgraded to 'B-'.
The exchange has improved the Dominican Republic's near term
credit profile due to the significant debt service relief
achieved in 2005 and 2006. However, other fundamental credit
concerns remain. Meeting the sovereign's debt service
requirement remains contingent upon complying with the
performance criteria contained in its Stand-by Agreement with
the IMF. While it appears that quantitative performance criteria
and indicative targets should be easily met, Fitch remains
concerned with the authorities' ability to stay on track with
structural performance criteria and benchmarks given past
difficulties. Any additional disbursement delays could make
meeting even modest debt service requirements challenging as the
public sector's external debt service could still be upwards of
US$829 million this year compared with international reserves of
around US$1.2 billion. Similarly, debt service could increase to
around US$1 billion in 2006, compared with forecasted reserve
levels of US$1.8 billion. In addition, medium-term export growth
prospects remain below average due to the expiry of textile
quotas under the WTO's Agreement on Textiles and Clothing and
the short-lived gains in competitiveness from the devaluation.
Stronger than expected fiscal results and economic growth during
the first quarter of this year as well as the debt
restructuring, could reduce the public sector's total financing
needs to an estimated 4.2% of GDP in 2005 from 8.4% in 2004,
supporting the 'B-' rating of the new bonds. A comparatively
orderly exchange undertaken with the support of the IMF and
official bilateral creditors, while at the same time remaining
current on its obligations to bondholders, signals the Dominican
authorities' commitment to make best efforts to normalize
relations with creditors.
Nevertheless, maintaining improvements in public finances and
strengthening the financial system will require significant
structural reforms, a process that could be complicated by the
2006 upcoming congressional elections. Improving export
prospects, which in turn could benefit reserve growth beyond
2006, will also be dependent upon the eventual approval of
CAFTA, a process which is becoming an increasingly uphill battle
in both the United States and some of the prospective member
countries of CAFTA.
CONTACT: Theresa Paiz Fredel +1-212-908-0534
Morgan Harting +1-212-908-0820, New York
MEDIA RELATIONS: Kenneth Reed +1-212-908-0540, New York
===========
M E X I C O
===========
AOL LATIN AMERICA: Class A Common Stock to Be Delisted May 19
------------------------------------------------------------
America Online Latin America, Inc. (Nasdaq:AOLA) said Wednesday
that its class A common stock will be delisted from the Nasdaq
SmallCap Market effective at the opening of business on May 19,
2005. AOLA received a Nasdaq Staff Determination on May 10, 2005
indicating that the class A common stock failed to comply with
the market value of listed securities requirement set forth in
Marketplace Rule 4310 (c)(2)(B)(ii) and therefore its class A
common stock will be delisted from the Nasdaq SmallCap Market.
America Online Latin America, Inc. (Nasdaq:AOLA) is the
exclusive provider of AOL-branded services in Latin America.
CONTACT: America Online Latin America, Inc.,
Fort Lauderdale
Mario Lanzoni
954-689-3244
BALLY TOTAL: Offers Crunch Fitness for Sale
-------------------------------------------
Bally Total Fitness Holding Corporation (NYSE: BFT), North
America's leader in health and fitness products and services,
announced Wednesday that it is has begun a sale process for its
Crunch Fitness(SM) clubs to be conducted by The Blackstone Group
L.P.
"The sale of Crunch is part of our overall strategy to
restructure and focus the operations of the Company and further
the turnaround of Bally Total Fitness," said Paul Toback,
Chairman and CEO of Bally Total Fitness. "The sale of Crunch
would provide the buyer with a great fitness brand while
enabling Bally to strengthen its core assets. We will evaluate
the interest in Crunch we obtain from potential buyers and then
determine the best course of action for our stakeholders."
Crunch Fitness, recognized as a premier brand in the high-end
fitness market, currently has more than 85,000 members and
operates 21 upscale, full-service gyms in New York City,
Chicago, Atlanta, San Francisco, Los Angeles and Miami.
As previously announced, Bally Total Fitness has engaged The
Blackstone Group L.P. to assist in its turnaround strategy. The
Company will also continue to look at its entire portfolio of
non-core assets to evaluate additional strategic alternatives
that benefit stakeholders.
Bally Total Fitness is the largest and only nationwide
commercial operator of fitness centers, with approximately four
million members and 440 facilities located in 29 states, Mexico,
Canada, Korea, China and the Caribbean under the Bally Total
Fitness(R), Crunch Fitness(SM), Gorilla Sports(SM), Pinnacle
Fitness(R), Bally Sports Clubs(R) and Sports Clubs of Canada(R)
brands. With an estimated 150 million annual visits to its
clubs, Bally offers a unique platform for distribution of a wide
range of products and services targeted to active, fitness-
conscious adult consumers.
GRUPO IUSACELL: Hopes to Make Interest Payments in 2Q05
-------------------------------------------------------
Faced with angry creditors who are seeking acceleration of bond
payments, troubled Mexican cellular company Iusacell said it
could make some interest payments on portions of its defaulted
debt in the next few months, reports Reuters.
"We are at the table with creditors, we keep negotiating and I
think we could pay some of the interests between the first and
second quarter of the year," Chief Executive Gustavo Guzman said
Wednesday.
Iusacell, owned by tycoon Ricardo Salinas, announced last week
that it received notification from The Bank of New York, acting
as trustee for the US$350 million 14 1/4 % notes due December
2006, informing that, due to Iusacell's non-payment of interest
since June 1, 2003, an unspecified percentage of noteholders
have requested the acceleration of principal and accrued
interest on the notes.
Grupo Iusacell, S.A. de C.V. (Iusacell, NYSE and BMV: CEL) is a
wireless cellular and PCS service provider in Mexico
encompassing a total of approximately 92 million POPs,
representing approximately 90% of the country's total
population. Independent of the negotiations towards the
restructuring of its debt, Iusacell reinforces its commitment
with customers, employees and suppliers and guarantees the
highest quality standards in its daily operations offering more
and better voice communication and data services through state-
of-the-art technology, such as its new 3G network, throughout
all of the regions in which it operate.
CONTACT: Investors:
Jose Luis Riera K.
Chief Financial Officer
+011-5525-5109-5927
J. Victor Ferrer
Financial Manager
+011-5525-5109-5273
vferrer@iusacell.com.mx
HYLSAMEX: Hylsa To Prepay Certificado Bursatil Due 2008
-------------------------------------------------------
HYLSAMEX, S.A. de C.V. (BMV: HylsamxB, HylsamxL) ("Hylsamex")
announced Tuesday that its subsidiary Hylsa, S.A. de C.V.
("Hylsa" or "the Company") has called all of its Certificados
Bursatiles Due 2008. Hylsa will pay holders of the Certificado
Bursatil on June 9th, 2005 US$66 million representing principal
(assuming a MXP 10.9693/USD exchange rate and 3.583227 as the
value of an UDI), plus interest accrued as of the payment date.
This prepayment and the previously announced prepayment of the
Bond Due 2007, significantly reduce Hylsamex's financing cost.
Hylsamex is a steel producer and processor, encompassing the
minimill route with vertical integration, which includes readily
available sources of low cost iron ore and proprietary
technology for the direct reduction of iron. The Company
manufactures a broad spectrum of steel products with a
significant emphasis on value-added products. Hylsamex, which
has a manufacturing and distribution presence in North America,
reaches its end customers through an extensive wholly-owned
distribution network.
CONTACT: Othon Diaz Del Guante
Tel: (52-81) 8865-1240
E-mail: odiaz@hylsamex.com.mx
Ismael De La Garza
Tel: (52-81) 8865-1224
E-mail: idelagarza@hylsamex.com.mx
ROCK-TENN: Moody's Cuts, Assigns Various Ratings
------------------------------------------------
Moody's Investors Service downgraded Rock-Tenn Company's ("Rock-
Tenn") senior unsecured bond ratings to Ba3 from Baa3 while
simultaneously issuing a Ba2 senior implied rating. The outlook
was restored to stable. The rating action follows Rock-Tenn's
announcement of a pending $540 million acquisition of the pulp,
paperboard and paperboard packaging assets of Gulf States Paper
Corporation, and concludes a review initiated on April 28th. The
company's new $700 million senior unsecured guaranteed bank
credit facility, arranged to finance the acquisition, was rated
Ba2. As is discussed in greater detail below, the rating action
accounts for three factors. Firstly, leverage increases
significantly as a consequence of the acquisition. Secondly,
ongoing profit margin pressure has caused credit protection
measures to come under pressure, and this impact is exacerbated
by the influence of the acquisition debt. Lastly, the company's
use of structurally senior bank debt disadvantages its existing
bonds, resulting in notching.
Ratings Downgraded:
- 7.25% Senior Unsecured Notes due August 1, 2005: to Ba3 from
Baa3
- 8.20% Senior Unsecured Notes due August 15, 2011: to Ba3 from
Baa3
- 5.625% Senior Unsecured Notes due March 15, 2013: to Ba3 from
Baa3
- Senior unsecured shelf: to (P)Ba3 to (P)Baa3
Ratings Issued:
- Outlook: Stable
- Senior implied: Ba2
- Senior unsecured $450 million guaranteed revolving bank credit
facility: Ba2
- Senior unsecured $250 million guaranteed term bank credit
facility: Ba2
Rock-Tenn has indicated it will use approximately $50 million of
cash on hand, $60 million from its accounts receivable
securitization facility, and proceeds from a new $700 million
senior unsecured guaranteed credit facility to fund the
acquisition. Moody's estimates that Rock-Tenn's debt will
increase by some 120% while its cash flow is expected to
increase by approximately 70%. The company has indicated that
Debt-to-EBITDA, measured on an adjusted LTM basis pro forma for
the acquisition, will increase by nearly a full turn to 4.4x.
While the acquisition provides diversification benefits and the
potential for synergies in the combined business' network of
folding carton facilities, ongoing raw materials and energy
price escalation has caused margin pressure in the company's
core recycled paperboard business. Margin pressure has also
resulted from excess capacity and resulting competition.
Accordingly, cash flow available for debt service - as a
proportion of sales - has not been robust over the recent past,
and is not expected to strengthen significantly over the near
term. The additional leverage resulting from the acquisition
places further stress on credit protection measures. Abstracting
from classes of debt that result from disparate guarantee
structures, these two influences cause the relationship between
the company's debt and cash flow to be representative of a Ba2
rating, and accordingly, the senior implied has been rated Ba2.
Concurrent with arranging for acquisition financing, Rock-Tenn
will reconfigure its liquidity arrangements. The existing $75
million revolving facility will be replaced by a $450 million 5-
year unsecured revolving credit facility. $200 million will be
drawn at closing, as will the entirety of a $250 5-year
amortizing term loan that completes the balance of the $700
million bank credit facility. Some $60 million of the company's
existing $75 million accounts receivable securitization program
will also be drawn. The latter facility is committed to May 1,
2006. While bank facility covenants have not yet been finalized,
Moody's does not expect near term compliance to be problematic.
However, covenant levels will likely prevent access to 100% of
committed liquidity, reducing the available amount by an
estimated 30%. In addition, the $74 million term debt maturity
in August will displace unused bank credit facility
availability. In all, these arrangements are adequate for the
company's needs.
Rock-Tenn Company is a publicly traded holding company that
conducts its operations through various operating companies. As
is the case with the company's publicly traded debt, its new
credit facilities will be in the name of Rock-Tenn Company, and
will be unsecured. However, the bank facility will benefit from
upstream guarantees from domestic subsidiaries; the existing
bonds do not. Consequently, the publicly traded debt is
structurally subordinated to the bank debt. Pre-acquisition,
with a relatively small $75 million bank credit facility, this
was not problematic. Post-acquisition, with the bank debt
representing approximately two-thirds of total debt, the
superior access to cash flow and assets has a significant impact
on realization prospects for the company's bonds, and
accordingly, their rating is notched down from the senior
implied rating to Ba3. Since some two-thirds of debt is
represented by the bank facility, it has been rated equivalent
to the senior implied rating at Ba2.
As a consequence of Moody's expectations of the magnitude and
stability of the company's margins, the outlook is stable.
Moody's expects Paper & Forest Products companies with Ba2 debt
ratings to generate average through-the-cycle RCF/TD of
approximately 15% with the commensurate FCF/TD figure being
nearly 10%. In the context of industry conditions, and given the
impact of the acquisition, Moody's expects Rock-Tenn to be able,
on average through the cycle, to achieve these metrics. Given
the stability the boxboard sector displays, Moody's expects
profits and cash flow generation to be more stable than those
observed for other Paper & Forest Products' commodities.
Accordingly, with low profit margins, Rock-Tenn will not be able
to dramatically reduce its debt load over the near-to-mid term.
Owing to the above factors, it is unlikely that the company's
ratings will be upgraded without relatively significant debt
amortization having occurred. Were that to occur, and if Moody's
estimates of average through the cycle RCF/TD approached 20%
with FCF/TD approaching 10%, an upgrade would be considered.
Alternatively, if Moody's assessment indicated the company could
not, on average through the cycle, achieve the above-noted Ba2
benchmark credit metrics (RCF/TD of approximately 15% with the
commensurate FCF/TD figure being nearly 10%), or if liquidity
were to deteriorate, the ratings would be subject to downgrade.
Further significant debt financed acquisition activity would
also have an adverse ratings impact.
Headquartered in Norcross, Georgia, Rock-Tenn Company, provides
marketing and packaging solutions to consumer products companies
from operating locations in the United States, Canada, Mexico
and Chile.
TFM: KCSR Commences Solicitation of Consents to Amend Indentures
----------------------------------------------------------------
Kansas City Southern ("KCS") (NYSE:KSU) announced Wednesday that
its wholly owned subsidiary, The Kansas City Southern Railway
Company ("KCSR"), has commenced a solicitation of consents to
amend the indentures, as supplemented where applicable (the
"Indentures"), under which KCSR's outstanding 9 1/2% Senior
Notes due 2008 (the "9 1/2% Notes") and outstanding 7 1/2%
Senior Notes due 2009 (the "7 1/2% Notes" and together with the
9 1/2% Notes, the "Notes") were issued.
The purpose of the consent solicitation is to ensure that (i)
the proposed settlement of certain disputes between TFM, S.A. de
C.V. ("TFM"), Grupo Transportacion Ferroviaria Mexicana, S.A. de
C.V. ("Grupo TFM"), which are both indirect subsidiaries of KCS,
and the Mexican government will not be deemed a violation of the
restrictive covenants relating to "Restricted Payments" or
"Asset Dispositions" under the terms of the Indentures, and (ii)
to further align the Indentures with the terms of certain of
TFM's debt obligations by permitting indebtedness and related
liens in an amount outstanding at any time of up to $275.0
million, $225.0 million of which must be incurred by TFM and its
restricted subsidiaries under TFM's senior credit facility or an
accounts receivable securitization. KCS does not know when or if
a settlement of the disputes between TFM, Grupo TFM and the
Mexican government will be consummated with the Mexican
government.
The record date for the consent solicitation is the close of
business, New York City time, on Tuesday, May 10, 2005. The
consent solicitation will expire at 5:00 p.m., New York City
time, on Tuesday, May 24, 2005, unless extended. KCSR is
offering a consent fee of 3.75 per $1,000 original principal
amount of the Notes to each holder of record as of the record
date who has delivered (and has not validly revoked) a valid
consent prior to the expiration of the consent solicitation.
KCSR's obligation to accept consents and pay the consent fee is
conditioned, among other things, on the receipt of consents from
holders of at least a majority in aggregate principal amount of
Notes of each series.
For a complete statement of the terms and conditions of the
consent solicitation and the amendment to the Indentures,
holders of the Notes should refer to the Consent Solicitation
Statement dated May 11, 2005, which is being sent to all holders
of record of the Notes as of the record date. Questions from
holders regarding the consent solicitation or requests for
additional copies of the Consent Solicitation Statement, the
Letter of Consent or other related documents should be directed
to D.F. King & Co., Inc., the Information Agent for the consent
solicitation, at 48 Wall Street, New York, New York, 10005
(telephone 800-714-3313) or the Solicitation Agent for the
consent solicitation, Morgan Stanley & Co. Incorporated, at 1585
Broadway, New York, New York, 10036 (telephone 800-624-1808).
This announcement is not a solicitation of consent with respect
to any Notes. The consent solicitation is being made solely by
the Consent Solicitation Statement and related documents, dated
May 11, 2005, which set forth the complete terms of the consent
solicitation.
Headquartered in Kansas City, Mo., KCS is a transportation
holding company that has railroad investments in the U.S.,
Mexico and Panama. Its primary U.S. holdings include The Kansas
City Southern Railway Company, founded in 1887, and The Texas-
Mexican Railway Company, founded in 1885, serving the central
and south central U.S. Its international holdings include a
controlling interest in TFM, S.A. de C.V., serving northeastern
and central Mexico and the port cities of Lazaro Cardenas,
Tampico and Veracruz, and a 50% interest in The Panama Canal
Railway Company, providing ocean-to-ocean freight and passenger
service along the Panama Canal. KCS's North American rail
holdings and strategic alliances are primary components of a
NAFTA Railway system, linking the commercial and industrial
centers of the U.S., Canada and Mexico.
CONTACT: Kansas City Southern
William H. Galligan, 816-983-1551
William.h.galligan@kcsr.com
=============
U R U G U A Y
=============
* URUGUAY: Fitch Rates $300M Issue Due 2017 'B+'; Stable Outlook
----------------------------------------------------------------
Fitch Ratings, the international rating agency, has assigned a
'B+' rating to Uruguay's US$300 million in Global bonds due May
17, 2017. The Rating Outlook is Stable.
According to Fitch sovereign analyst, Morgan Harting, 'Uruguay's
sovereign ratings reflect its improving debt dynamics as a
result of currency strength and economic growth. On the other
hand, public and external debt is still higher than peers and
there are concerns about long-term growth prospects.'
CONTACT: Morgan C. Harting +1-212-908-0820
Roger M. Scher +1-212-908-0240, New York
MEDIA RELATIONS: Kenneth Reed +1-212-908-0540, New York
=================
V E N E Z U E L A
=================
PDVSA: BCV Requires US Dollar Oil Revenues Be Converted
-------------------------------------------------------
The Venezuelan Central Bank (BCV) advised state oil company
Petroleos de Venezuela (PDVSA) to sell the US dollars received
on account of oil revenues to the Central Bank to comply with
rules and regulations, according to online news source
Eluniversal.com
"Sales over the counter market or payments in US dollars are not
permitted. Bolivar is the local currency and domestic payment
should be made in bolivars. Any company in the possession of US
dollars should sell exclusively to the BCV. Any other way to
convert bolivars into US dollars is illegal," BCV bank director
Domingo Maza Zavala said.
Zavala suggested that PDVSA should take care of oil drilling and
sale, and put any other activity in the hands of appropriate
agencies.
PDVSA: CITGO Investigating Committee Postpones Hearing Inquest
--------------------------------------------------------------
Felix Rodriguez, the president of Citgo, failed to show up
Wednesday to testify before a committee investigating into
alleged corruption at the US refining unit of PDVSA, reports
Business News Americas.
As such, the energy and mines committee of Venezuela's national
assembly, which is conducting the probe, postponed the hearing
testimony until next week, according to lawmaker Julio Montoya.
Venezuela's energy and oil minister and PDVSA president Rafael
Rodriguez announced the CITGO investigation in March this year
following rumors that PDVSA is looking to get rid of the
subsidiary citing liquidity concerns.
Former Citgo officials have claimed that CITGO is profitable.
When asked by Business News Americas whether CITGO is
profitable, former CITGO president Luis Marin, who showed up at
Wednesday's scheduled inquest, replied: "The numbers in two
years of [my] tenure clearly show it. It paid dividends [to
PDVSA] of about US$900mn [in 2003-2004], had operational
earnings of more than US$800mn in 2003 and over US$1.1bn in
2004."
Asked whether the company should be offloaded, Marin said, "You
should probably ask that to the current Citgo president."
CONTACT: CITGO PETROLEUM CORPORATION
Investor Relations Contact:
Kate Robbins
Public Affairs Manager
(832) 486-5764
E-Mail: InvRel@citgo.com
***********
S U B S C R I P T I O N I N F O R M A T I O N
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co-published by Bankruptcy Creditors' Service, Inc., Fairless
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Copyright 2005. All rights reserved. ISSN 1529-2746.
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