TerreStar Says it May File for Bankruptcy
TerreStar is considering filing for Chapter 11 bankruptcy protection, the company said in its Q2 10-Q filing with the SEC. The firm has struggled to find financial stability in recent years despite a launched satellite and large investments from major companies such as Harbinger Capital Partners and EchoStar. Continued operations, including the release of a new phone with AT&T scheduled for September, may depend on support from those companies, said satellite industry executives. How the filing may affect possible incentive auctions for the 2 GHz band is unclear, because the FCC just opened its proceeding on how best to encourage mobile broadband investment in the MSS bands (CD July 16 p1), said executives.
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"Based on the current plans, we have substantial doubt that our cash, investments and available borrowing capacity as of June 30, 2010 will be sufficient to cover the projected funding needs for the third quarter of 2010,” TerreStar’s filing said. “If we fail to obtain necessary financing on a timely basis, we may be forced to curtail operations or take other actions.” The company said it had $15 million cash and cash equivalents June 30. TerreStar said its largest source of revenue comes from 1.4 GHz band spectrum it leases by the month to Harbinger, which made a $30 million prepayment in January.
TerreStar has had trouble coming up with a workable business model as an MSS/ancillary terrestrial component operator and has been unable to begin service on the terrestrial side. Though it’s working with AT&T to sell a phone that can use TerreStar’s satellite service and AT&T’s terrestrial network, the launch was recently pushed off to next month. “It is not a surprise to anyone that TerreStar has been in a difficult position in the last several months,” said Tim Farrar, president of TMF Associates. “The question is whether Harbinger is willing to keep providing funding to it. Nobody knows the answer to that in this point.” Harbinger didn’t respond to a request for comment.
Convincing investors of the company’s value may be difficult, considering its large debt, said Farrar. The issue for TerreStar is “whether anyone believes it is worth injecting money into the company,” he said. “Unless you believe there is a substantial upside from realizing spectrum value, most people would be reluctant to put in money when they have about a billion in secured debt."
EchoStar, which owns a significant amount of TerreStar’s debt, would have likely have the most leverage in a bankruptcy proceeding, said a satellite industry lawyer. EchoStar declined to comment.