Loral calls examiner's valuation "grossly inflated"

By Ellen Chang

Houston, March 24 - Loral Space & Communications Ltd. dismissed as "grossly inflated" that valuation put on the company by court-appointed examined Harrison Goldin.

The New York-based satellite company said that Goldin's conclusion that its reorganization plan undervalued Loral by $281 million to $463 million is "inappropriate and inflammatory."

Goldin's conclusion was "without merit and is founded on and supported by faulty and improper methodologies," Loral said in its response to the examiner's report.

"Reasonable judgment is an essential part of valuation," not just the "mechanical application of theoretical techniques and mathematical formulae," Loral said in its rebuttal, filed Thursday with the U.S. Bankruptcy Court for the Southern District of New York.

Among its arguments, the company said that in valuing its Space Systems/Loral unit, it took into account management's belief that putting debt on its balance sheet would impede its ability to win new orders. Therefore, using an industry-average cost of capital is not appropriate since diversified manufacturers such as Boeing or Northrop Grumman can support debt while Space Systems/Loral must rely on more expensive equity.

Loral also said the examiner made wrong assumptions about the timing of cash receipts after 2008.

Goldin was asked to carry out his investigation by the bankruptcy court after stockholders claimed the company was worth more than Loral estimated.

In his report, filed Monday, Goldin said Loral's process resulted in it undervaluing its assets.

Certain assumptions and the application or weighting of the various valuation approaches resulted in a "not insignificant understatement in value, amounting to the aggregate to $281-$463 million," Goldin said.

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

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

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

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

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

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

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

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