The Last of the Mohicans

This write-up has nothing to do with the movie. However, given the high valuations of most equities, I
refer to LORL as The Last of the Undervalued Securities.

LORL currently trades at a 15% FCF yield. I believe a potential near-term catalyst could propel LORL to
$55.00 - $60.00 per share, providing for 30%-45% upside.

Company Overview

Loral Space & Communications (NASDAQ: LORL) is a holding company, so it wont come up on any value
screens. LORLs main asset is its 62.7% economic interest in Telesat Canada (Telesat, or The
Company). LORL also holds about 20% of its market cap in cash, or ~$9.00 per share. Canadian
pension plan PSP owns the remainder of Telesat.

Founded in 1969, Telesat is a Canadian satellite communications company headquarter in Ottawa. It

has a fleet of 15 geostationary satellites plus the Canadian payload on ViaSat-1, in addition to two more
satellites under construction (Telstar 18 Vantage and Telstar 19 Vantage to be launched 2018).

Telesat produces a significant amount of free cash flow. Revenue visibility is high as blue chip customers
such as Shaw, BCE and Hughes sign long-term contracts prior to satellite construction, resulting in a very
stable, non-cyclical business. The company provides the following services:

1. Broadcast Direct-to-home TV, video distribution, occasional use services

2. Enterprise Telecommunication carrier, government, consumer broadband, energy, resource,
maritime, aeronautical, retail
3. Consulting

Geographic revenue split: Canada 46%, US 33%, RoW 21%.

Aside from its main GEO satellites business, Telesat is working on an advanced, low latency global low-
earth orbit (LEO) constellation. This constellation would be used to provide low latency satellite
broadband services. The Company is currently constructing two prototype satellites for launch into low
earth orbit. This area has seen significant interest from a myriad of technology and industrial companies
including OneWeb (backed by Softbank), SpaceX and Boeing. While Telesat has asked the FCC for a
license to operate 117 LEO satellites, any significant progress on this development is years away.

Financial Overview
Overview
Share Price (USD) $41.90
Basic Shares O/S 30.9
Dilutives 0.0
F/D Shares O/S 30.9
LORL Market Cap (US$) $1,296.1
LORL Cash (US$) $273.8
LORL Debt / Pension (US$) $88.1
LORL Net Debt (US$) -$185.7
LORL EV (US$) $1,110.4
Telesat Ownership 62.70%
Implied Telsat Market Cap (US$) $1,771.0
Implied Telsat Market Cap (C$) $2,243.5
Telesat Cash (CS$) $291.0
Telesat Debt (C$) $3,696.3
Telesat Net Debt (C$) $3,405.3
Implied Telesat EV (C$) $5,648.8
EBITDA (2018E) $759.0
Levered FCF (2018E) $343.0
Revenue (2018E) $949.1

EV/EBITDA (2018E) 7.4x

P/FCF (2018E) 6.5x
EV/Sales (2018E) 6.0x
Net Debt / EBITDA 4.5x
FCF Yield 15%
Leverage covenant 5.75x

Historically, Telesat has grown revenue in the low-single digits. The broadcast business is in decline
while the enterprise business is growing. Q1 2017 revenue increased 1% YoY (ex-F/X). I assume this
growth rate going forward.

2010 2011 2012 2013 2014 2015 2016 2017E

Broadcast Revenue Growth 11.7% -3.9% 0.6% 7.2% -0.6% 5.2% -1.3% 1.0%
Enterprise Revenue Growth -4.2% 2.1% 11.3% 5.8% 6.9% 1.0% -3.3% 1.0%
Consulting Revenue Growth 3.9% -7.3% -13.1% -9.2% 4.0% 13.4% -12.4% 0.0%
Total Revenue Growth 4.3% -1.6% 4.6% 6.0% 2.9% 3.5% -2.5% 1.0%

EBITDA is relatively stable, increasing 1% YoY in Q1 2017. The company previously guided 2017 EBITDA of
C$763mm.

Valuation

LORL is trading at a 15% levered free cash flow yield vs its unsecured bonds yielding 6.6% (note that its
secured term loan represents about half of the enterprise value).
A conservative discounted cash flow analysis results in an estimate intrinsic value per share range of
$50.00 - $55.00 at a 10% discount rate.

LORL Share Price

Revenue Growth
$51.7 -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
7.0% $87.21 $89.49 $91.87 $94.34 $96.92 $99.60 $102.39 $105.29 $108.31 $111.45 $114.72
7.5% $77.62 $79.69 $81.84 $84.08 $86.42 $88.84 $91.37 $93.99 $96.72 $99.56 $102.51
8.0% $69.42 $71.31 $73.27 $75.32 $77.44 $79.66 $81.95 $84.34 $86.83 $89.41 $92.09
8.5% $62.33 $64.07 $65.87 $67.74 $69.69 $71.72 $73.82 $76.01 $78.28 $80.64 $83.10
Discount Rate

9.0% $56.14 $57.74 $59.41 $61.13 $62.93 $64.79 $66.73 $68.74 $70.83 $73.00 $75.26
9.5% $50.70 $52.18 $53.72 $55.32 $56.98 $58.70 $60.49 $62.35 $64.28 $66.29 $68.37
10.0% $45.86 $47.24 $48.67 $50.16 $51.70 $53.30 $54.96 $56.69 $58.48 $60.34 $62.27
10.5% $41.55 $42.84 $44.17 $45.56 $46.99 $48.49 $50.03 $51.64 $53.30 $55.03 $56.83
11.0% $37.67 $38.88 $40.13 $41.42 $42.77 $44.16 $45.61 $47.11 $48.66 $50.28 $51.95
11.5% $34.17 $35.31 $36.48 $37.69 $38.95 $40.26 $41.62 $43.02 $44.48 $45.99 $47.55
12.0% $31.00 $32.06 $33.17 $34.31 $35.49 $36.72 $38.00 $39.32 $40.68 $42.10 $43.57

LORL currently trades at a discount to its comps, despite being relatively higher quality (higher margin,
North American focus, business stability, LEO upside, potential near term catalyst)

Net Debt / Estimated

Market Cap Net Debt EV / EBITDA EV / Revenue EBITDA Revenue EBITDA
Company Name Price (mm) (mm) EV (mm) (2018E) (2018E) (2018E) Growth Margin

Eutelsat (EUR) 22.25 5,178.1 3,701.6 9,039.3 8.1x 6.2x 3.3x -0.8% 76.5%
SES (EUR) 19.93 9,172.6 3,839.9 14,451.1 9.1x 6.1x 2.4x 6.1% 67.7%
Intelsat (US$) $3.19 $376.5 $13,532.1 $13,985.9 8.3x 6.3x 8.0x 2.0% 75.8%
Average 8.6x 6.1x
Telesat (C$) $2,243.5 $3,405.3 $5,648.8 7.4x 6.0x 4.5x 1.0% 80.0%
Source: Bloomberg, Company filings

At an 8.5x 9.0x EBITDA multiple, LORL would trade at $55.00 - $60.00, representing upside of 30% -
45%.

At a premium 10x multiple (upside on takeover), LORL would trade at $75.00.

LORL Share Price Sensitivity

Share Price (US$) $41.90 $35.00 $40.00 $45.00 $50.00 $55.00 $60.00 $65.00 $70.00 $75.00 $80.00
LORL Market Cap (US$) $1,296.1 $1,082.6 $1,237.3 $1,392.0 $1,546.6 $1,701.3 $1,856.0 $2,010.6 $2,165.3 $2,320.0 $2,474.6
LORL EV (US$) $1,110.4 $897.0 $1,051.7 $1,206.3 $1,361.0 $1,515.6 $1,670.3 $1,825.0 $1,979.6 $2,134.3 $2,289.0
Telesat Market Cap (US$) $1,771.0 $1,430.6 $1,677.3 $1,924.0 $2,170.6 $2,417.3 $2,664.0 $2,910.6 $3,157.3 $3,404.0 $3,650.7
Telesat Market Cap (C$) $2,243.5 $1,812.3 $2,124.8 $2,437.2 $2,749.7 $3,062.2 $3,374.7 $3,687.2 $3,999.6 $4,312.1 $4,624.6
Telesat EV (US$) $4,459.2 $4,118.8 $4,365.5 $4,612.1 $4,858.8 $5,105.5 $5,352.1 $5,598.8 $5,845.5 $6,092.2 $6,338.8
Telesat EV (C$) $5,648.8 $5,217.6 $5,530.1 $5,842.6 $6,155.1 $6,467.5 $6,780.0 $7,092.5 $7,405.0 $7,717.5 $8,029.9
EV/EBITDA (2018E) 7.4x 6.9x 7.3x 7.7x 8.1x 8.5x 8.9x 9.3x 9.8x 10.2x 10.6x
Levered FCF Yield 15% 19% 16% 14% 12% 11% 10% 9% 9% 8% 7%
Upside / (Downside) 0% -16% -5% 7% 19% 31% 43% 55% 67% 79% 91%

While presenting interesting upside optionality, I do not assign any value to the LEO initiative nor a
potential buyout.

Why Does This Opportunity Exist?

F/X Telesat has US$2.9bn of debt, which is 1.6x its current market cap. Only 33% of its
revenue is from the US (almost half is Canadian). Previously, Telesat hedged its F/X exposure.
 But in an ill-advised lapse in judgement, it let its F/X hedges (short CAD / long USD) expire Oct 31
2014, right before the CADUSD began its jaw-dropping decline. This had the effect of causing
Telesats debt to balloon in CAD terms, and the resulting equity value to decline given a constant
enterprise value. The Company has not implemented F/X hedges since. On a positive note, the
CADUSD has risen from the ashes and has appreciated markedly. While LORLs stock tanked
along with CADUSD in 2015, LORL has not matched the current CADUSD rally (ie. LORLs
valuation has compressed).

Failed sale Chairman Mark Rachesky controls LORL through his firm MHRs ~40% stake. While
LORL owns 62.7% of Telesat, it only has voting interest of about 1/3. He rejected a friendly offer
from Ontario Teachers for $80.00 per LORL share (valuing Telesat at $7bn or roughly 10x
EBITDA) in 2014: http://www.reuters.com/article/us-loral-space-sale-idUSKBN0EY2Q220140624
. Teachers lost interest once the CAD began to tank, then event-driven funds exited the illiquid
stock en masse.
Strategic alternatives process has not borne fruit Since the failed sale, LORL has been
attempting to IPO, which would remove the holding company structure. In July 2015, LORL
exercised its right to require Telesat to IPO. This has not occurred yet because LORL and PSP
have been unable to come to an agreement on governance. While Im not 100%, presumably
this is because LORL and PSP have a contentious relationship. In addition, there was a slump in
satellite stocks Intelsat, Eutelsat and SES.

Catalyst

Near the end of 2016, Telesat refinanced its debt. This freed up cash to pay its shareholders a
US$400mm distribution (LORL received US$243mm). In January, LORL stated it would distribute this
cash, which is about $8.00 per share (20% of the current market cap). Six months later, why hasnt this
been paid?

I believe LORL is now holding onto the cash as it is currently planning to merge Telesat into LORL in
order to eliminate LORLs holdco structure and increase stock liquidity. Combining Telesat and LORL
into one company will unlock value and allow LORL to trade in-line with its comps, which would imply
~$60.00 per LORL share.

LORLs current complicated holdco structure presents the following issues:

Screens poorly as Telesats performance does not flow through LORLs financial statements.
No analyst coverage, despite $1.3bn market cap
No presence in ETF or quant portfolios. Given index investing is taking over the world, not being
in ETFs is a death knell for share price performance.
Tax inefficient.
Canadian dual-share class company held in a US dual-share class holdco.
Generates significant free cash flow but does not pay regular dividend (only random, large
special dividends).

If the Telesat / LORL combination failed to come to fruition, LORL will likely pay a dividend of about
$8.00, or 20% of its market cap.

Earlier this year, Softbank-backed OneWeb reached a friendly deal to merge with Intelsat. However, the
deal was rejected by Intelsats bondholders, who were trying to extract more value. While the
bondholders were playing hardball, Softbank declared that it has been approached by and has been in
discussions with several other potential merger partners over the past few months. Telesat has been
rumored as a potential merger partner:

Conclusion

A confluence of mostly-temporary factors has caused LORL stock to trade down to an attractive
valuation with a significant margin of safety. LORL is likely to restructure its complicated holdco
structure which may allow the stock to rerate to $55.00 - $60.00 per share, representing upside of 30% -
45%. If this fails to come to fruition, LORL will distribute cash equal to ~20% of its current market cap.
In the meantime, LORL shareholders hold a stake in a stable 15% free cash flow satellite business with
intriguing upside potential.