Highland Capital Management opposes Loral Space's $300 million convertible preferred stock deal

By Sheri Kasprzak

New York, Oct. 24 - Highland Capital Management, LP, a shareholder of Loral Space & Communications Inc., said it opposes the company's recent $300 million private placement of convertible preferred stock with MHR Fund Management LLC. Michael Targoff, Loral's chief executive officer, did not respond to requests for comment on the allegations Tuesday.

The investor said it is even willing to backstop the $300 million offering by agreeing to purchase all remaining convertible preferred stock not purchased by the other public stockholders.

In a letter written to Loral's board of directors, Highland Capital said it feels the offering "smacks of insider trading because of MHR's position with respect to Loral."

MHR is one of Loral's majority shareholders.

Highland contends that before the offering was concluded, Loral did not consult its other stockholders about purchasing any of the securities.

"It is a mystery to us why you have put yourselves in the crosshairs of possible litigation and regulatory action by failing to exercise your fiduciary duties for the good of all stockholders and by approving this transaction," said the letter from Highland, in part.

"We believe this proposed transaction is a disservice to all stockholders that are not within the MHR umbrella. It reeks of self-dealing, self-interest and is contrary to established market principles of fairness."

Highland and its affiliates own more than 5% of Loral's stock.

Highland, in its letter, said it feels the offering is not in the best interest of Loral and non-MHR holders because the coupon, conversion price and perpetual nature of the offering "bear no resemblance to typical market terms or recent transactions. Further, Loral has offered only one investor (and its affiliates) the very investor-favorable terms of the proposed transaction and they apparently have not been made available to other significant stockholders in order to allow them to maintain their pro-rata ownership share."

Highland also said it opposes the additional seat MHR will receive on Loral's board of directors.

The offering closed Oct. 17 when Loral issued $41 million in series A and $259 million in series B convertible preferred stock to MHR. The 7.5% preferreds are convertible at $30.15 each.

Loral, based in New York, is a satellite communications company.

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