The creditor battle for the remaining proceeds from Dish Network’s US$1.375bn purchase of Terrestar is delaying the company’s exit from Chapter 11 bankruptcy protection.
The debtor has requested a further 60-day extension to the exclusivity period…
The creditor battle for the remaining proceeds from Dish Network’s US$1.375bn purchase of Terrestar is delaying the company’s exit from Chapter 11 bankruptcy protection.
The debtor has requested a further 60-day extension to the exclusivity period of its plan in order to provide more time to achieve a settlement to the inter-creditor disputes.
The disagreement centres on the size of the distribution that Terrestar’s unsecured creditors will receive after the senior secured noteholders have had their claims satisfied. The official committee of unsecured creditors filed an objection with the bankruptcy court on 25 October against a claim by the noteholders that they should also be awarded both a make-whole premium and postpetition interest on the debt.
The committee argues that the claim is excessive and unjustified and would leave the unsecure creditors with virtually nothing.
The committee stated in its filing: “The senior secured noteholders and their indenture trustee – the major beneficiaries of the chapter 11 process and the sale – have asserted a claim that exceeds the purchase price of the debtors’ assets by the inclusion of unfounded and aggressive charges which have the impact of essentially leaving nothing available for unsecured creditors.
“Most parties in these chapter 11 cases recognize that continued litigation and prolonging these chapter 11 cases is not in the best interest of the debtors’ estates not only because of the costs, but because the proceeds available for unsecured creditors may be completely wiped out.”
Following the bankruptcy court approval of Dish’s acquisition on 7 July 2011, Terrestar received US$1.345bn in proceeds from the sale transaction on 11 August. Pursuant to the first paydown order, the debtor subsequently paid slightly over US$975m of its secured debt obligations. This comprised all obligations under the DIP financing, a large portion of its senior secured notes and the majority of its TerreStar-2 Purchase Money Credit Agreement (PMCA).
A second paydown order came into effect on 5 October, whereby Terrestar paid a further US$143.9m to the senior secure noteholders. Finally, on 13 October, the company settled all its remaining PMCA issues by repaying US$8.3m in obligations.
Terrestar stated that after deducting various administrative and operational expenses, through to 31 December 2011, the company will have at least US$155m to distribute to its creditors.
According to the committee’s objection, the senior secured noteholders have asserted an entitlement to postpetition interest of 15.5% under the senior secured notes indenture, which represents approximately US$123m in postpetition interest obligations. As such, the unsecured creditors are projected to receive distributions totalling less than US$50m from approximately US$500 million of unsecured claims.
A hearing is now due to be held on 21 December to discuss the unsecured creditors objections with the aim of finding a solution to the creditor standoff.
