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.”
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$120m rights offering 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 1,000 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 Credit Facility, which was connected to the acquisition of TerreStar-2 and is worth under US$100m.
As a result of the Chapter 11 bankruptcy filing, the NASDAQ stock exchange has determined to delist TerreStar from 15 November.
Harbinger snaps up debt to block EchoStar’s restructuring plan
TerreStar’s other major noteholder, Harbinger Capital Partners, is seeking to block the EchoStar-led bankruptcy reorganisation plan by purchasing the company’s exchangeable notes.
Following the bankruptcy announcement on 19 October, Harbinger has purchased a significant portion of the satellite operator’s 6.5% senior exchangeable PIK notes in a series of transactions.
By holding the majority of the exchangeable notes, Harbinger hopes to have a greater say over the reorganisation plan presented to the US Bankruptcy Court Southern District of New York.
Via its subsidiary Credit Distressed Blue Line Master Fund, Harbinger purchased approximately 21.25 million of Terrestar’s exchangeable PIK note securities on 27 October. The hedge fund then made an additional purchase of 4.39 million securities on 29 October. The notes, which are due 15 June 2014, have a conversion price of US$5.574 per security.
The bankruptcy case will take place at the US Bankruptcy Court Southern District of New York under Judge Sean Lane.
On 5 November, Terrestar Networks filed its joint Chapter 11 plan, with the court hearing due to be held on 10 December, 2010. This date is also the deadline for proofs of claims against the debtors. Depending on how effective Harbinger is at blocking the plan, TerreStar Networks and EchoStar are seeking to make the plan effective by the end of May 2011.
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.
Weil, Gotshal & Manges is acting as counsel to Harbinger Capital Partners with Quinn Emanuel Urquhart & Sullivan counsel to an ad hoc group of the 6.5% senior exchangeable noteholders, and Willkie Farr & Gallagher counsel to EchoStar.
