From evidence presented by plaintiffs in a lawsuit against Loral, the special committee was given a very narrow objective that limited them to negotiating a $300 million finance deal with MHR.

As stated in court documentation by Michael Targoff, the special committee’s “mandate was to negotiate a transaction with MHR that they could tell the company, they believed, if they could get there, was a reasonable and best available to the company”.

Loral’s board of directors decided after a May 26, 2006 board meeting that the special committee’s scope was to be expanded in order to create its own definition of what it should be doing. According to the documentation submitted in court, this directive was given in order to satisfy recommendations and advice from legal counsel.

In his opinion, Leo Strine notes that on April 18, 2006, longtime Loral investment banker Morgan Stanley presented a different approach that called for $150-200M in capital raised from a public common stock offering and the utilization of reviving credit facilities at both Skynet and SS/L. This plan called for MHR’s role to become a backstop for the public offering instead of the equity owner of the entire $300M placement. Despite the fact that a month later the special committee was given the power to expand its scope via its definition process, the committee opted to stay on its current course, citing time pressures and overall capital requirements as the primary reasons for not exploring debt alternatives or equity financing from other sources. This included the decision to forgo further evaluation of Morgan Stanley’s presentation that had taken place a month earlier.

On May 16, 2006, one day after Loral’s board meeting, MHR sent the special committee a letter of intent with proposed terms for a $300 million preferred stock investment.
With this letter of intent in hand, John Harkey led the search for a financial advisor who would work with MHR’s advisor, Deutsche Bank. After eliminating several candidates, including Lehman Brothers, Harkey settled on North Point Advisors, LLC, a little known investment bank with no experience in the satellite industry, but with whom Harkey had worked before.

The Special Committee sought to have a decision made in time for the June 14 board meeting. North Point advisors presented a recommendation to the special committee on Sunday, June 4, 2006 that called for “the sale of convertible preferred to MHR as the best alternative” and that Loral should “pay a dividend between 5% and 7.5%, and that the conversion premium should be 12% to 15%.” In the end, the Special Committee recommended to the board the best terms of the overall recommendation, with a 7.5% coupon rate and a 12% conversion premium.