James Dondero‘s Highland Capital Management has reiterated holding 9.9% of Loral Space & Communications Ltd. (NASDAQ:LORL). Highland owns some 2.13 million shares of the company. However, the main reason for the fund issuing the filing was the change in the nature of the stake to passive from activist.
Earlier in August, Mr. Dondero sent a letter to Loral Space & Communication expressing his fund’s concerns regarding Loral selling itself to a consortium in Canada. Even though previously, the public sources had claimed that Loral Space & Communications Ltd. (NASDAQ:LORL) plans to sell only its subsidiary, Telesat Holdings, which is the company’s largest asset, later on it was said that the company’s board was looking into the offer to sell the whole company for around $80-$85 per share. Nevertheless, the company has not made any public announcement, and the company’s board of directors replied to Highland by saying that it (the board) is taking into account all circumstances and is aware of all of its fiduciary duties.
Mr. Dondero also said in the letter that Telesat, has been generating the most cash flow for Loral Space & Communications Ltd. (NASDAQ:LORL). Telesat owns 14 sateliates, and this fleet have the most significant impact on the subsidiary’s cash flow, which is why selling Loral’s 63% interest in the company would not provide the best interest for the shareholders, such as Highland. Among other investors, one of the largest shareholders of Loral is Mark Rachesky‘s MHR Fund Management, which owns around 8.13 million shares as of the end of June. Christopher Pucillo‘s Solus Alternative Asset Management raised its stake by 11% during the second quarter to some 1.65 million shares.
In the meantime, the stock of Loral Space & Communications Ltd. (NASDAQ:LORL) has been declining, losing over 16% since the beginning of the year. The company has been fighting a lawsuit with its competitor ViaSat, Inc. (NASDAQ:VSAT) for several months and lost the case at the beginning of September, being forced to pay $100 million, together with its former subsidiary Space Systems/Loral. From the financial point, the company increased its net income to $1.67 in the second quarter from a loss of $0.26 a year ago. Moreover, the stock trails a P/E of around 29.00, which is below the communication equipment industry average of 43.00.
Loral Space & Communications Ltd. (NASDAQ:LORL) not making any official statements regarding the sale of the company or of only the Telesat subsidiary, was probably the main reason for Highland changing the nature of its stake. Nevertheless, the fund owns a significant position in the company, the holding being the third-largest in terms of value in the equity portfolio. However, Mr. Dondero’s largest bet, which amasses around 11% of the equity portfolio, is represented by around 6.56 million shares of American Airlines Group Inc (NASDAQ:AAL), the stock of which has been gaining ground over the last year. Moreover, it is important to mention that Highland is mainly a credit investment fund and only a small portion of its assets is invested in US equities.