TerreStar looks to repay secured debt with proceeds, boost recoveries

By Caroline Salls

Pittsburgh, July 6 - TerreStar Networks Inc. requested court approval to repay its existing secured debt on or as soon as possible after it can access $1.345 billion of its asset sale proceeds to eliminate monthly interest payments on its more than $1.1 billion of secured obligations, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The debt in question includes $97 million owed on a purchase money credit agreement, $88.8 million on TerreStar's debtor-in-possession financing agreement and $1.077 billion on its 15% senior secured notes.

According to the motion, TerreStar hopes to soon have access to $1.345 billion of the total $1.375 billion in sale proceeds.

The company said its debt amounts were based on an assumed Aug. 31 repayment date. The proceeds funding date is expected to occur no later than Sept. 30.

"That purchase price represents a substantial, but finite pool of funds for the debtors' operations through Dec. 31, 2011 and distributions to creditors," the company said in the motion.

TerreStar said the monthly interest payments on the secured debt would eventually keep the company's unsecured creditors from receiving any recovery on their claims.

Specifically, the company said unsecured creditor recoveries would be "close to zero" if interest on the secured debt continued to accrue through November.

TerreStar said $40 million in interest accrues each quarter on the 15% notes, $3.4 million to $3.5 million per quarter on the purchase money loan and $3 million per quarter on the DIP facility.

"Each dollar of interest that continues to accrue on the secured obligations is one less dollar that will be available for distributions to the debtors' unsecured creditors," the company said in the motion.

TerreStar said the likelihood and magnitude of unsecured creditor recoveries would be maximized if the secured debt is repaid on the funding date rather than the plan effective date, which could be anywhere from 60 to 120 days later.

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. The Chapter 11 case number is 10-15446.

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