Mobile satellite operator TerreStar has hired Blackstone to advise it on finding fresh financing as it struggles with a series of looming contractual, preferred stock and debt obligations.
The company revealed in its 10Q condensed final statements, filed…
Mobile satellite operator TerreStar has hired Blackstone to advise it on finding fresh financing as it struggles with a series of looming contractual, preferred stock and debt obligations.
The company revealed in its 10Q condensed final statements, filed on August 6, 2010, that it is facing an imminent funding crisis, stating: “Based on our current plans, there is substantial doubt that the available cash balance, investments and available borrowing capacity as of June 30, 2010 will be sufficient to satisfy the projected funding needs for third quarter of 2010.” Adding: “We are currently considering various alternatives to extend our liquidity and raise capital. We cannot guarantee that financing will be available or available on favorable terms. If we fail to obtain necessary financing on a timely basis, we may be forced to curtail operations or take other actions that will impact our ability to conduct our operations as planned.
“In the event that none of the various alternatives is consummated, we may need to initiate proceedings for relief by making a voluntary bankruptcy filing under Chapter 11 of the United States Code to, among other things, reorganize our capital structure.” Blackstone’s job will not be an easy one given the current financing environment for relatively nascent satellite ventures.
As one banker remarked: “For ECA backed financings there isn’t a lot of money out there right now for this sort of venture.
They have a big hill to climb and unless a new anchor investor emerges it will be very difficult.” Despite holding approximately 49.32% of TerreStar Networks (the North American ATC licence holding subsidiary), as well as a portion of its debt, hedge fund Harbinger Capital Partners is thought unlikely to come to TerreStar’s rescue. One source argued that given its substantial economic interests in LightSquared and Inmarsat it would be a surprise to see Harbinger pour more money into the satellite operator.
In addition, the source remarked that Harbinger has already secured a number of long-term spectrum lease agreements with TerreStar for the hedgefund’s LightSquared venture. While the rules under bankruptcy protection mean such contracts can be rejected, at present Harbinger seemingly has all it wants from its investment.
TerreStar’s short term liquidity needs are predominantly related to redemption obligations under its Series A and Series B cumulative convertible preferred stock as well as contractual commitments to the development of its handsets, chipset and ground-based satellite infrastructure. As of June 30, 2010, TerreStar faced contractual requirements of US$534.5m due within one year, comprising approximately US$435.1m related to the Series A and B Preferred Stock; US$62.9m related to its handset, chipset, terrestrial network and orbital incentive payments; US$29.8m for its satellite system; US$3.7m for operating leases and US$3m in interest payments for its 6.5% Exchangeable PIK Notes due 2014.
The company also noted that because it has not partially redeemed the Series A and B Preferred Stock, a default has occurred under its credit agreement which unless waived or resolved could result in approximately US$72.6m of obligations being due immediately. A default also means that the holders of the credit agreement can elect to accelerate the indebtedness which would in turn lead to a default under the indentures for its 15% Senior Secured PIK Notes due 2014 and 6.5% Exchangeable PIK Notes due 2014. This would result in obligations of approximately US$1.078bn becoming immediately due and payable.
To that end, TerreStar has commenced restructuring discussions with certain holders of the 15% Secured Notes and 6.5% Exchangeable Notes.
TerreStar’s hopes for new funding predominantly lie with the FCC’s Notice of Proposed Rulemaking (NPRM) that would change rules regarding spectrum allocated to mobile satellite service in the 2GHz band, where TerreStar holds a chunk. If the FCC goes ahead with its plan to enable the holders to lease their spectrum to terrestrial operators for mobile broadband services, TerreStar could argue that its spectrum carries considerable future value.
