Loral's ad hoc trade creditors oppose disclosure statement

By Jeff Pines

Washington, Nov. 30 - Loral Space & Communications Ltd.'s ad hoc committee of trade creditors joined Angelo Gordon & Co. Inc. in objecting to the company's proposed disclosure statement. It wants the judge to reject the disclosure statement and send the company back to the drawing board.

The committee filed its objection with the U.S. Bankruptcy Court for the Southern District of New York Monday.

Like the investment firm, the trade creditors, who hold claims of $26 million, believe they are being given the short end of the stick by the New York-based satellite maker through substantive consolidation.

"Just when Loral appears to be on the verge of rehabilitation, the debtors and certain members of the official committee of unsecured creditors (the "committee") are poised to exploit the reorganization process and perpetrate (a hundreds of million dollar) fraud on innocent creditors," the ad hoc committee said.

Bondholders, who dominate the unsecured creditors committee, are using substantive consolidation to give themselves a better recovery than the trade claims, which are structurally superior, the ad hoc committee said. The committee of six consists of five bondholders and one trade creditor.

The substantive consolidation is being accomplished through a settlement, but the ad hoc committee said, "This simply is not a settlement; it is a theft."

Consolidation is not supposed to be a common remedy and the facts of the case do not support consolidation, it said.

Bond prospectuses warned buyers that the bonds were junior in right of payment to other debts of the parents' subsidiaries, the ad hoc committee said. Further, Loral routinely identified itself as a company organized into "distinct business segments." Each segment had its own managers, directors and employees with its own separate secured financing and bonds.

"Yet, nowhere in the disclosure statement is any explanation given for the sudden radical departure from these consistent representations of separateness," the ad hoc committee said.

Under the proposed plan, the trade creditors would get 29 to about 33 cents on the dollar, whereas the bond creditors would get 60 cents to 89 cents on the dollar, it said.

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

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