TerreStar Networks files plan; EchoStar to backstop rights offering

By Caroline Salls

Pittsburgh, Nov. 8 - TerreStar Networks Inc. filed a plan of reorganization and related disclosure statement Nov. 5 with the U.S. Bankruptcy Court for the Southern District of New York.

The company said the plan is based on restructuring transactions supported by its largest secured creditor, EchoStar Corp., including equitization of TerreStar's $1 billion of secured debt obligations and a $125 million new money rights offering, $100 million of which will be backstopped by EchoStar.

TerreStar said it will emerge from bankruptcy with an improved, highly deleveraged balance sheet.

The company said it had roughly $1.2 billion in funded debt facilities when it filed for bankruptcy, including $943.9 million in 15% senior secured pay-in-kind notes due 2014, $178.7 million in 6.5% senior exchangeable PIK notes due 2014 and $85.9 million under a TerreStar-2 purchase money credit agreement.

However, under the plan, the reorganized company's sole funded debt would be the amounts owed under the TerreStar-2 credit agreement.

Creditor treatment

Treatment of creditors will include:

• Holders of priority claims will be paid in full in cash;

• Holders of other secured claims will either have their claims reinstated, be paid in full in cash, receive the proceeds from the sale of the collateral securing the claims or receive the collateral;

• Holders of senior secured notes claims will receive a share of a class 3 distribution, including 97.3% of the new common stock in the reorganized company and rights to purchase 97% of rights offering preferred stock if their claims are allowed by the subscription record date;

• PMCA claims will be reinstated;

• Holders of senior exchangeable notes claims will receive a share of a class 5 distribution, including 1% to 3% of the new common stock and rights to purchase 1% to 3% of the rights offering preferred stock;

• Holders of unsecured claims will receive a share of a class 6 distribution, including 3% of the new common stock, minus any amount distributed under the class 5 distribution and the rights to purchase 3% of the rights offering preferred stock, minus any rights distributed to class 5 creditors;

• Holders of convenience claims will receive either cash equal to the lesser of 10% of their claims or a share of $500,000; and

• Equity holders will receive no distribution.

The disclosure statement hearing is scheduled for Dec. 10.

Based in Reston, Va., TerreStar is a holding company with subsidiaries that operate satellite-based digital mobile communications systems. The company filed for bankruptcy on Oct. 19. The Chapter 11 case number is 10-15446.

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