As part of its restructuring process in Chapter 11 bankruptcy protection, mobile satellite services operator Terrestar Networks has put its assets up for sale. The reason behind the move, referred to in the bankruptcy court filing documents as the…
As part of its restructuring process in Chapter 11 bankruptcy protection, mobile satellite services operator Terrestar Networks has put its assets up for sale.
The reason behind the move, referred to in the bankruptcy court filing documents as the “alternative transaction”, is to both ascertain the current market value of Terrestar’s assets and to potentially lead to an offer for any or all of those assets that would generate greater value for the company’s creditors than the joint restructuring plan with EchoStar.
The assets that are subject to this alternative transaction are the US and Canadian S-band ATC operational licences, the rights to the TerreStar-1 and TerreStar-2 satellites and the company’s existing satellite communications network assets.
Blackstone, which has been advising Terrestar Networks both before and during its bankruptcy protection process, is the primary point of contact for the sales process.
Under Terrestar and EchoStar’s proposed Restructuring Support 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, which is predominantly Harbinger Capital Partners, and other unsecured claims. An additional US$125m would then be raised via a rights offering with EchoStar agreeing to backstop US$100m of it. The hearing at the US Bankruptcy Court Southern District of New York to approve the plan is scheduled to take place on December 10.
EchoStar also agreed to provide Terrestar with up to US$75m in junior secured debtor-in-possession financing. On November 18, the Bankruptcy Court Judge, Sean Lane, approved this DIP financing and by November 29, Terrestar had drawn approximately US$18m of it.
Elektrobit sues Terrestar
Finland-based wireless communications solutions firm Elektrobit Corporation has filed a lawsuit against TerreStar in the Supreme Court of the State of New York seeking payment for its outstanding receivables of approximately US$25.8 m.
The claim, which is being made by subsidiary Elektrobit Inc, is based on direct contractual obligations provided by TerreStar for receivables owed by TerreStar Networks.
The reason for the move is based on Elektrobit’s assumption that TerreStar is set to imminently follow its subsidiary into bankruptcy protection and that if this were the case then the Finnish company’s legal claims would remain valid.
Elektrobit stated: “According to court filings relating to the reorganization proceedings, it is contemplated by TerreStar Networks that TerreStar will file their own voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the near term. It is Elektrobit’s understanding that if TerreStar did file for reorganization, the legal proceedings brought by Elektrobit against TerreStar would be stayed under the United States bankruptcy law.”
Elektrobit added that it did not expect the lawsuit to affect its rights in reorganisation proceedings initiated by TerreStar Networks. It added that while the current bankruptcy court filings contain limited information on how Elektrobit’s receivables would be treated in the reorganisation, the plan being filed by Terrestar Networks and EchoStar suggests that payment may take the form of newly issued common stock and rights to purchase newly issued preferred stock in the reorganised debtors.
It will be interesting to see whether Elektrobit’s claim will prompt Terrestar Networks’ other contractual claimants from launching similar bids. Space Systems Loral is owed US$35.65m, while Hughes Network Systems is owed US$4.5m. In all, Terrestar Networks has over 1000 creditors, including the likes of Infineon Technologies, Qualcomm and Nokia Siemens Networks.
