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…
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 reorganization 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 reorganized debtors.
Under the 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 and other unsecured claims, including that of Elektrobit.
As part of the plan, EchoStar would also provide Terrestar Networks with US$75m of Debtor-in-Possession financing, the motion for which was granted by the New York bankruptcy court judge Sean Lane on 16 November.
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 1,000 creditors, including the likes of Infineon Technologies, Qualcomm and Nokia Siemens Networks.
