[Satellite News 01-25-11] Since TerreStar Corp. subsidiary TerreStar Networks filed for chapter 11 bankruptcy protection in October, the company’s investors have been locked in a heated legal battle to protect its $1.4 billion assets — most importantly, the TerreStar-1 satellite — from creditors.
    While creditors agreed in December to allow EchoStar to buy $125 million of preferred stock as part of TerreStar Network’s reorganization plan, a group of TerreStar Networks’ creditors recently sued its higher-ranking lenders, led by U.S. Bank, to void the lenders’ liens on TerreStar-1 and secure more money for the lower-ranking creditors.
    An official from one of TerreStar’s manufacturing partners, who asked not to be named, said communication between TerreStar and its financial partners has stalled. “There’s a lot of confusion and frustration. The people who invested time and money into this project just want to know how much they’re losing. It’s at that point now where we know that nobody is going to be happy,” the official said.
    TerreStar, which will continue to operate through bankruptcy, partnered with AT&T in 2009 roll out a satellite mobile service using TerreStar’s Genus dual-mode smartphone. The company also is building the TerreStar-2 satellite. “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,” TerreStar CEO Jeffrey Epstein said in an October statement.
    At a December hearing, the New York State Bankruptcy Court gave creditors until Feb. 7 to decide whether or not to participate in TerreStar’s refinancing and corporate governance plan. The confirmation hearing, at which the court will decide whether to put the reorganization in place, is scheduled for March 7.
   TerreStar said its refinancing and reorganization plans include a preferred stock sale to raise cash to emerge from bankruptcy and the convergence of its debt to equity, where 97 percent would go to current debt holders. Most of that value would go to EchoStar, which owns a majority of TerreStar’s $943.9 million of secured debt in the form of 15 percent bonds due in 2014.
    Sprint Nextel Corp., however, is not buying into the plan. The company claims TerreStar Networks is attempting to get out of paying $104 million in monetary damages Sprint was owed before TerreStar’s bankruptcy filing.
    TerreStar spokeswoman Kelly Adams denied Sprint’s charges. “Sprint is trying to pick and choose which TerreStar entity it pursues. The reason is that as an unsecured creditor of TerreStar Networks, Sprint is behind close to $1 billion in secured debt obligations and may not receive a large recovery on its claim, whereas at other debtor entities, unsecured creditors might obtain a larger recovery.” she said. “Sprint also had a chance before and just after our bankruptcy filing to oppose an FCC [U.S. Federal Communications Commission] ruling that subjected TerreStar to pay these damages and costs but never did.”
    Adams said TerreStar would try to have the bankruptcy court dismiss or reduce the claims in a hearing scheduled for March 4. Sprint could not be reached to comment on this story.
    TerreStar creditors see hope in the possible sale of the company by Harbinger Capital Partners to a more dedicated investor. A December Wall Street Journal report claimed that MetroPCS Communications was interested in purchasing TerreStar Network’s assets. MetroPCS declined to comment to Satellite News.
   A spokesman for Dish Network and EchoStar told Satellite News that EchoStar is looking to buy TerreStar from Harbinger for the DBSD broadband spectrum TerreStar controls. “Dish Network would have a minority stake, as that capacity would help Dish and EchoStar provide competitive offers over video IP providers.” The spokesman also said that rumors of EchoStar possibly flipping TerreStar to the highest bidder if a broadband shortage develops “aren’t entirely unfounded.”
    To obtain TerreStar’s assets, EchoStar must negotiate with Harbinger as well as other high-profile investors such as Highland, Solus Alternative Asset Management and Stark Investments. In a Jan. 17 statement, Highland and a group of hedge funds owning DBSD bonds said they would continue their legal efforts against Dish Network and EchoStar throughout TerreStar Networks’ bankruptcy process.
    “We’re still in talks with Harbinger, Solus and Stark about TerreStar, nothing has been ruled out yet,” the EchoStar spokesman said.