TerreStar Corp. reaches agreement with creditor, lenders, shareholders

By Jim Witters

Wilmington, Del., Aug. 3 - TerreStar Corp. is seeking approval of a stipulated agreement with creditor Elektrobit Inc., certain preferred shareholders and its bridge lenders that is intended to resolve disputes and pending litigation matters, according to documents filed Aug. 2 with the U.S. Bankruptcy Court for the Southern District of New York.

To fund the settlement, TerreStar also is asking the court to increase its post-petition debtor-in-possession financing facility to $16.5 million from $3 million.

History of disputes

During TerreStar's 17 months in bankruptcy, Elektribit has disagreed with the debtors on numerous issues, including the amount of Elektrobit's asserted claim in the case and the appropriate treatment for unsecured creditors under the debtors' Chapter 11 plan, the filing states.

Elektrobit is TerreStar's largest unsecured creditor, asserting a claim of $27.8 million.

Elektrobit has filed objections with the court and may file more, including an objection to approval of TerreStar's DIP financing facility, according to court documents.

"These disputes have cost, and if unresolved will continue to cost, both Elektrobit and the debtors significant legal fees and may delay or prevent the debtors' exit from Chapter 11," according to the filing.

Settlement terms

Under the proposed settlement

• Elektrobit will receive an immediate cash payment of $13.5 million in satisfaction of its claim;

• Elektrobit will agree to support TerreStar's Chapter 11 plan and withdraw all pending litigation; and

• TerreStar, the preferred shareholders and Elektrobit will mutually release each other with regard to all issues related to the Chapter 11 cases.

The settlement will reduce the amount owed to Elektrobit by about half and "stop the bleed of litigation expenses," the filing states.

Under the terms of the proposed plan, all unsecured creditors are to receive full recovery, either through a secured note or from the proceeds of a sale.

DIP increase

The funds to make the settlement payment will come from TerreStar's DIP financing. So, a condition of the agreement is that the court must first approve the debtors' motion for $16.5 million in DIP financing.

TerreStar requested an increase from the original $3 million DIP facility.

Other terms of the original DIP motion remain intact, court documents state.

TerreStar Corp. and TerreStar Holdings requested court approval to obtain DIP financing from Solus Alternative Asset Management LP, Highland Capital Management, LP, West Face Long Term Opportunities Global Master LP and Och-Ziff Capital Management Group.

Motient Ventures Holding Inc. is the guarantor for the TerreStar debtors.

NexBank SSB is the DIP loan agent.

The DIP facility will mature on the earliest of six months, the effective date of the borrowers' Chapter 11 plan and the completion of a sale of all or substantially all of the borrowers' assets.

Interest will be 10.5%.

A hearing on the settlement agreement and the DIP financing is scheduled for 4 p.m. ET on Aug. 23.

TerreStar Corp. and TerreStar Holdings are subsidiaries of TerreStar Networks Inc., a Reston, Va.-based holding company with subsidiaries that operate satellite-based digital mobile communications systems. TerreStar Corp. And TerreStar Holdings filed for bankruptcy on Feb. 16, 2011. Their Chapter 11 case number is 11-10612.

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