Loral says bondholders question insurance policy

New York, Nov. 14 - Loral Space & Communications Ltd. said some bondholders have questioned whether the insurance policy for its Telstar 10/Apstar IIR satellite is in compliance with the indentures of Loral Orion's 10% senior notes.

But management of the company said in a filing with the Securities and Exchange Commission that it believes it is in compliance with the insurance covenant "as properly interpreted."

At dispute is a provision in the insurance policy which only provides coverage of losses due to solar array failures if 75% or more of the satellite's capacity is lost.

"Some of Loral Orion's bondholders have questioned whether this limitation is in compliance with the Loral Orion indenture insurance covenant," Loral said in the SEC filing.

Although it believes it is in compliance, Loral also cautioned that if bondholders were to give a notice of default and a court ruled against Loral Orion then the notes could be accelerated and the bondholders could call on Loral Space & Communications' guarantee of the notes.

Loral said that under the 10% note indenture its in-orbit insurance is required to treat a loss of 50% or more of a satellite's capacity as a total loss.

The company said it has already modified the policy taken out by the satellite's previous owners that set a 65% loss of capacity as the threshold for a total loss. Loral Orion had retained the previous policy but "upon becoming aware that the existing insurance policy did not meet the indenture's requirements, took steps to cure the matter," the SEC filing said.

Telstar 10/Apstar IIR was manufactured by Space Systems/Loral, Inc. and has the same solar array as two other 1300-class satellites from the same manufacturer that have suffered solar failure.

Loral said in the SEC filing that Space Systems/Loral believes the failures "are isolated events and do not reflect a systemic problem in either the satellite design or manufacturing process."

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