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EchoStar Bankruptcy Loan to TerreStar Wins Approval

EchoStar Corp.’s $75 million bankruptcy loan to TerreStar Networks Inc., a satellite communications company, was approved by a judge over opposition from TerreStar creditors.

U.S. Bankruptcy Judge Sean Lane in Manhattan today gave final approval to the loan, which will fund TerreStar during its bankruptcy. The judge previously approved a portion of the loan.

TerreStar, based in Reston, Virginia, provides satellite mobile communications coverage. It filed for bankruptcy in October with plans for a restructuring financed by EchoStar, a television equipment and satellite company.

Under the proposed restructuring, EchoStar, based in Englewood, Colorado, and other secured noteholders would swap more than $940 million in debt for 97 percent of TerreStar’s equity, according to court papers. EchoStar also would backstop $100 million of a $125 million preferred-stock rights offering, according to an affidavit filed at the beginning of the bankruptcy.S

At the start of today’s court hearing, Marathon Asset Management LP attorney Philip Anker said the hedge fund was prepared to replace EchoStar as TerreStar’s bankruptcy lender with its own $75 million loan.

Arik Preis, a lawyer for TerreStar, said Marathon, a TerreStar creditor, only provided a term sheet without a commitment. He said EchoStar’s loan is more attractive in any case because it’s junior financing, allowing TerreStar to avoid a court fight with senior creditors.

‘Only Game in Town’

“At this point, we don’t have anything better,” Preis said of the EchoStar financing. “We’re not willing to play poker with our only game in town.”

In his ruling, Lane said the Marathon offer wasn’t a reason to deny the EchoStar loan because there was no commitment and because there was no evidence it was a superior proposal. Lane, while approving the financing, denied one provision that would have given EchoStar a lien on proceeds of certain lawsuits.

TerreStar creditors opposed the EchoStar financing, saying it gives EchoStar too much control over the bankruptcy. They said in court papers that EchoStar is using deadlines in the financing to push TerreStar through bankruptcy quickly and win approval for the EchoStar-backed plan.

TerreStar contacted more than 50 parties about financing, Preis said, and the EchoStar loan was the best deal available. If better financing comes along, TerreStar isn’t prevented from accepting it, Preis said.

Rachel Strickland, a lawyer for EchoStar, said the company isn’t trying to exert control over TerreStar.

“They are very much holding their own reins,” she said.

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

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