TerreStar Networks bankrupt; EchoStar supports debt-for-equity swap

By Caroline Salls

Pittsburgh, Oct. 19 - TerreStar Corp. majority owned subsidiary TerreStar Networks Inc. and other affiliates filed for Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the Southern District of New York as part of a strategic plan to strengthen their financial position and achieve long-term success in the mobile satellite services market, according to a company news release.

Through the restructuring, TerreStar Networks said it hopes to lessen its debt obligations in order to place greater focus on its recently launched integrated satellite-cellular smartphone.

"After careful consideration of all available alternatives, we determined filing Chapter 11 was a necessary and prudent step to strengthen our balance sheet and gain financial flexibility in order to access liquidity and position TerreStar Networks as a stronger, healthier company," TerreStar president and chief executive officer Jeffrey W. Epstein said in the release.

According to the release, TerreStar Networks has entered into a restructuring support agreement with EchoStar Corp., its largest secured creditor, under which EchoStar has agreed to support a restructuring premised on a debt-for-equity conversion by the company's secured noteholders.

EchoStar has also agreed to backstop a $100 million rights offering that will provide the funding for TerreStar Networks' exit from Chapter 11.

"The commitment EchoStar has made to support our restructuring will allow us to maximize value for all of our stakeholders and allow us to emerge from Chapter 11 on an expedited time frame," Epstein said in the release.

In conjunction with the bankruptcy filing, TerreStar Networks has also obtained a commitment for $75 million in debtor-in-possession financing from EchoStar.

The company said it will use the DIP financing to maintain business-as-usual operations during the restructuring process.

The company is seeking interim access to $18 million of the DIP financing.

The terms of the DIP financing had not been filed as of Tuesday evening.

Debt details

According to court documents, TerreStar Networks had $1.401 billion in assets and $1.642 billion in consolidated debt at June 30.

The company's largest unsecured creditors include:

• Indenture trustee U.S. Bank, NA of St. Paul, Minn., with a $178.58 million noteholder claim;

• Space Systems/Loral Inc. of Palo Alto, Calif., with a $35.65 million vendor claim;

• Elektrobit, Inc. of Bothell, Wash., with a $25.66 million vendor claim;

• Hughes Network System LLC, based in Germantown, Md., with a $4.51 million vendor claim;

• Infineon Technologies AG of Neubiberg, Germany, with a $2.94 million vendor claim;

• Qualcomm, based in San Diego, with a $2.28 million vendor claim;

• Comneon GMBH of Nuremburg, with a $1.69 million vendor claim;

• ATC Technologies of Reston, Va., with a $1.38 million vendor claim; and

• Nokia Siemens Network, based in Dallas, with a $1 million vendor claim.

The company is represented by Akin, Gump, Strauss, Hauer & Feld, LLP.

Based in Reston, Va., TerreStar is a holding company with subsidiaries that operate satellite-based digital mobile communications systems. The Chapter 11 case number is 10-15446.

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