TerreStar Networks, the North American subsidiary of Terrestar Corporation, has filed for Chapter 11 bankruptcy protection with its largest secured creditor, EchoStar, poised to take control of the company. The announcement comes just two months after…
TerreStar Networks, the North American subsidiary of Terrestar Corporation, has filed for Chapter 11 bankruptcy protection with its largest secured creditor, EchoStar, poised to take control of the company.
The announcement comes just two months after the company warned in a 10Q SEC filing that it may have to seek voluntary bankruptcy if it could not solve its funding crisis.
Jeffrey Epstein, president and chief executive officer of TerreStar, said, “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.”
The bankruptcy case will take place at the US Bankruptcy Court Southern District of New York under Judge Sean Lane. Terrestar has hired Akin Gump Strauss Hauer & Feld and Fraser Milner Casgrain as its legal counsels. Blackstone, which was hired back in August to help find new funding, continues to be Terrestar’s financial adviser.
Concurrently with its chapter 11 filing, TerreStar Networks has entered into an agreement with EchoStar to provide the company with a US$75m debtor-in-possession loan on a junior secured super-priority priming lien basis. TerreStar will use the debtor-in-possession financing to maintain business-as-usual operations during the restructuring process. The Bank of New York Mellon is the DIP Agent.
The two companies have also entered into a Restructuring Support Agreement, under which EchoStar has agreed to support a restructuring plan premised on a debt-for-equity conversion by TerreStar’s secured noteholders, as well as backstop US$100m of a US$12m rights offering that will that will be used to repay the TerreStar’s DIP Financing facility in full as well as fund its operations upon emergence from chapter 11.
Epstein commented: “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.”
Under the restructuring agreement, the approximate US$944m outstanding of the 15% Senior Secured PIK Notes, of which EchoStar currently owns more than 50%, would be converted into 97% of the new preferred stock in Terrestar Networks with the remaining 3% held by the holders of the exchangeable notes and other unsecured claims. The new preferred stock is to be issued at a 35% discount to the net distributable value of approximately US$1.05bn.
Terrestar Networks has more than 1000 creditors, the largest of which are the holders of the 6.5% Senior Exchangeable Notes who are owed US$178.58m. Satellite manufacturer Space Systems Loral is owed US$35.65m, while wireless communications solutions firm Elektrobit is owed US$25.66m and satellite communications firm Hughes Network Systems US$4.5m. A number of other companies, including Infineon Technologies, Qualcomm, Comneon and Nokia Siemens Networks, are owed between US$1m and US$3m.
The equity owners of TerreStar Networks, TerreStar Corporation (89%) and LightSquared (11%), would not receive anything from the restructuring plan.
The only indebtedness that would be outstanding following TerreStar Network’s emergence from chapter 11 would be the Purchase Money Credit Agreement (PMCA) Credit Facility, which was connected to the acquisition of TerreStar-2 and is worth under US$100m.
TerreStar’s other major noteholder alongside EchoStar was hedge fund Harbinger Capital Partners. It remains to be seen whether Harbinger will consent with this restructuring plan, which will ostensibly see EchoStar take control of TerreStar. The finalised restructuring plan is to presented to the Bankruptcy Court no later than
14 December 2010, with a subsequent hearing due prior to 31 January 2011. TerreStar Networks and EchoStar are then seeking to make the plan effective by the end of May 2011.
