TerreStar Can Send Chapter 11 Plan to Creditors

TerreStar Networks Inc., a provider of satellite-based mobile communications, won approval to send its reorganization plan to creditors for a vote after most objectors withdrew their opposition.

U.S. Bankruptcy Judge Sean Lane in New York today approved the disclosure statement, which explains the plan. He overruled the objection of Sprint Nextel Corp. and scheduled a March 4 hearing for confirmation of the plan.

TerreStar, based in Reston, Virginia, filed for Chapter 11 protection from creditors in October, listing assets of $1.4 billion and liabilities of $1.6 billion. TerreStar and its affiliates need more financing “before they become profitable enough to service their current debt load,” Chief Executive Officer Jeffrey Epstein said in court papers.

Sprint Nextel, in a lawsuit filed last week, asked the bankruptcy judge to rule that TerreStar violated federal law by giving secured lenders a lien on licenses granted by the Federal Communications Commission. The company has a claim of $104 million against TerreStar.

Sprint Nextel, based in Overland Park, Kansas, said it opposed the amended disclosure statement because creditors were given too little time to study the changes before today’s hearing.

“The risk of a confirmation hearing in March is it will not permit enough time to litigate,” John Culver, a lawyer representing Sprint Nextel, told the judge.

Lane overruled the objection and told the lawyers for Sprint Nextel and TerreStar to work out schedules for the adversary lawsuit.

“The parties should talk,” Lane said. “I want to hear pretty quickly from Sprint and TerreStar.”

Objections Withdrawn

Objections to the disclosure statement by Harbinger Capital Partners LLC, Solus Alternative Asset Management, the official committee of creditors with unsecured claims, an ad hoc group of holders of 15 percent senior secured notes and Deutsche Bank National Trust Co. were withdrawn either before or during today’s hearing.

The plan calls for EchoStar Corp. and other secured noteholders to swap more than $940 million in debt for 97 percent of the equity in the restructured company.

EchoStar agreed to backstop an entire proposed $125 million preferred-stock rights offering, meaning it will buy the shares if other investors don’t.

EchoStar originally planned to backstop $100 million of the offering. Lawyers for EchoStar and TerreStar told the judge today the commitment had been increased.

Loans by EchoStar

Lane last month approved $75 million in loans by EchoStar to TerreStar to finance operations during Chapter 11. EchoStar is the largest secured creditor of TerreStar Networks and the second-biggest shareholder in the parent, TerreStar Corp., according to Bloomberg data. Harbinger Capital Partners is the largest shareholder.

Marathon Asset Management LLC, the third-largest shareholder in TerreStar Corp., objected to the EchoStar financing, saying that it would give that company too much control. Marathon said it would be willing to provide the $75 million in loans. The judge ruled in favor of EchoStar’s plan.

In addition to seeking confirmation of its reorganization plan, TerreStar filed a notice in November of the marketing and possible sale of its assets.

TerreStar provides wireless mobile communications via satellite in the U.S. and Canada in rural areas where traditional networks aren’t available. A satellite was launched in July 2009.

The case is In re TerreStar Networks Inc., 10-15446, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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