TerreStar committee asks court to reduce 15% PIK notes interest claim

By Caroline Salls

Pittsburgh, Oct. 25 - TerreStar Networks Inc.'s official committee of unsecured creditors objected to the make-whole premium and post-bankruptcy interest claim that the indenture trustee filed for the company's 15% senior secured paid-in-kind notes due 2014, according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The committee said TerreStar received "a finite sum" of asset sale proceeds that must be shared among all of its creditors.

The creditor group said the senior secured noteholders and their indenture trustee have filed a claim that exceeds the purchase price of the assets "by the inclusion of unfounded and aggressive charges, which have the impact of essentially leaving nothing available for unsecured creditors."

According to the objection, there are disputes surrounding the senior secured notes that cannot be resolved without litigation.

"The insistence of the senior secured noteholders - who have already received full satisfaction of all principal and prepetition interest - that they are entitled to both a make-whole premium and compound interest has precluded reasonable settlement from being achieved," the committee said in its objection.

In addition, the committee said the noteholders know that they can achieve the same economic result as recovering a make-whole premium through delaying payment of the notes obligations as long as possible to allow post-bankruptcy interest to continue to accrue.

As a result, the committee said the court needs to step in "to bring these Chapter 11 cases to a conclusion and eliminate the incentive for further delay."

Specifically, the unsecured creditors are asking the court to disallow the make-whole premium and to reduce the senior secured notes claim to an amount that calls for post-bankruptcy simple interest of no less than the federal judgment rate, but no more than 9% through Oct. 5.

As an alternative, the committee said the court could disallow the make-whole premium and reduce the notes claim to provide for post-bankruptcy interest at the contract rate of 15.5% until Aug. 11 and post-bankruptcy simple interest of no less than the federal judgment rate and no more than 9% from Aug. 11 to Oct. 5.

The committee said Aug. 11 is the date the company received $1.345 billion in sale proceeds and the noteholders became cash collateralized. It said Oct. 5 is the date the noteholders' interest and principal were repaid.

A hearing is scheduled for Dec. 21.

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, 2010. Its Chapter 11 case number is 10-15446.

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