S&P Revises Loral Space & Communications Outlk to Neg

Business Wire, Sept 11, 1998

NEW YORK--(BUSINESS WIRE)--Standard & Poor's CreditWire 9/11/98 -Standard & Poor's today revised its outlook on Loral Space & Communications Ltd. to negative from developing.

In addition, Standard & Poor's affirmed its double-'B'-minus corporate credit rating on Loral Space and its single-'B' rating on the company's $745 million 6% series C convertible redeemable preferred stock due Nov. 1, 2006.

The outlook revision reflects expected increased business and financial risks at 42%-owned Globalstar L.P. The unit, a major business initiative and investment of Loral, anticipates start-up delays and additional cash requirements due to the recent launch failure of a rocket carrying 12 communications satellites. Loral Space's ratings already reflect commitments to major high-risk development projects, offset by respectable positions in niche markets. Also, management has a long record of substantial, successful acquisitions, and there is potential for material debt issuance. Consequently, business and financial risk are expected to remain elevated over the next few years.

Loral Space's operating units consist of Orion Network Systems Inc., Space Systems/Loral Inc. (SS/L), and Skynet. Orion, acquired in March 1998, provides niche market private network communications and high-speed data transmission. One communications satellite is operating, and two more are scheduled to be launched over the next year. Space Systems/Loral is a major manufacturer of commercial space satellites. Demand is expected to remain strong; improved technological capabilities are expanding use of telecommunication and direct broadcast satellites. Satellite supply is limited to a few established manufacturers, with extremely high barriers to market entry. Skynet, acquired in March 1997, leases satellite transponder capacity to clients and is in the midst of a major expansion program subject to launch risks. In December 1997, Loral purchased a 49% voting interest in Satelites Mexicanos S.A. de C.V., a provider of satellite services in Mexico.

Globalstar L.P. is a development-stage company that is building and will operate a worldwide, low-earth orbit satellite-based telecommunications system. With the launch failure, which was fully insured, management now targets service startup for the end of 1999, a four-month delay. Outlays are estimated to rise by some $200 million to cover revenue shortfalls in 1999 and added hardware needs, and additional financing will be necessary. Operations remain subject to regulatory, technical, and launch risks. Also, market demand remains to be demonstrated. Loral has substantial partners committed to this project, which had been budgeted to cost $2.8 billion, mitigating financial and market risks.

At June 30, 1998 Loral had about $700 million in cash, pro forma for the purchase of an additional 4% stake in Globalstar on July 6, 1998, compared to about $630 million of debt, on a $3.0 billion equity base. Borrowings exclude about $890 million at Orion, a wholly owned subsidiary, which have not been assumed or guaranteed by Loral.

OUTLOOK: NEGATIVE

Loral's financial flexibility is moderately reduced by current problems at Globalstar. However, material additional cost overruns or service delays at Globalstar, possibly prompting a cash infusion by Loral, could lower Loral's credit quality, Standard & Poor's said. --CreditWire

CONTACT: Martin Knoblowitz, New York (1) 212-208-1614

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