Loral Files Chapter 11

Bowing to heavy debts and communications-industry overcapacity, Loral (LOR) is seeking bankruptcy protection.

Saying it hopes to sell six North American satellites to help pay creditors, Loral filed for Chapter 11 Tuesday in U.S. Bankruptcy Court for the Southern District of New York. Shares, which closed at $3.01 Monday, fell 75% in premarket trading Tuesday. Loral did a 1-for-10 reverse split only last month.

The New York satellite maker and network operator had accumulated $2.1 billion in debt and had been a major investor in the failed satellite phone service Globalstar. With about $700 million in annual net losses on less than $1 billion in sales, the company had run out of funding options.

Loral says rival Intelsat has agreed to buy its North American satellites for $1.1 billion. If the sale is completed, Loral says the proceeds would go toward repaying its $959 million bank debt.

Like its terrestrial counterparts Global Crossing, Level 3 (LVLT) and 360 Networks, Loral was part of a massive, capital-intensive buildout of far-reaching networks that greatly overestimated the growth of Internet traffic and resulted in a glut of communications capacity.

The telecommunications industry is still digging itself out from under the debts and operating costs associated with those networks.

"We have concluded that a sale of the North American satellites, coupled with a Chapter 11 reorganization, represents the best way to resolve the financial difficulties that have resulted from the downturn," says CEO Bernard Schwartz.

The company plans to reorganize around its three remaining satellites that serve Europe, South America and Asia. Two additional satellites are scheduled to be launched later this year. Loral also plans to continue its satellite manufacturing business, and says it has a pending order from Intelsat for a new satellite.

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