TerreStar Affiliates File for Bankruptcy
A group of TerreStar affiliates filed for Chapter 11 bankruptcy protection in an effort to restructure hefty debt obligations, the company said. EchoStar, the largest secured debt-holder, will provide $75 million in debtor-in-possession (DIP) funding allowing TerreStar to continue operations and backstopping a $100 million rights offering, raising speculation by industry analysts of increased EchoStar involvement in future operations. TerreStar warned investors this summer it was considering filing for bankruptcy (CD Aug 10 p5). The filing Tuesday may allow for large spectrum acquisitions in the 2 GHz band, observers said.
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TerreStar Networks filed in the U.S. Bankruptcy Court for the Southern District of New York in “hopes to lessen its debt obligations in order to place greater focus” on providing mobile communications with its recently launched smartphone, the company said. Although the company recently started selling its Genus phone -- which can switch between satellite and terrestrial service through an agreement with AT&T -- the company has been largely unable to make a workable business using its mobile satellite services/ancillary terrestrial component authorization.
The bankruptcy filing includes its in-orbit satellite, TerreStar-1, unfinished satellite, TerreStar-2, and 20 MHz of 2 GHz spectrum holdings. Parent company TerreStar Corp., which isn’t in bankruptcy, retains its 1.4 GHz holdings, leased to Harbinger Capital Partners, LightSquared’s parent, for $2 million monthly.
The bankruptcy filing mentions the FCC proceeding on MSS only tangentially, saying in a footnote that the agency may loosen gating criteria for use of the ATC authorization. “Access to a completed and operational ground spare satellite is a requirement for TerreStar’s ATC authorization; however, the National Broadband Plan has proposed relaxing this criterion,” the company said in its filing. “It remains to be seen whether the FCC will in fact remove the requirement for a ground spare satellite.” The filing doesn’t mention the possibility of incentive auctions or spectrum fees, both raised by the FCC in an inquiry on increasing broadband use across all MSS bands. Some observers have pointed to the possibility of incentive auctions as a way for 2 GHz licensees TerreStar and DBSD, which is also going through bankruptcy, to quickly make money on their holdings.
The bankruptcies involving the two licensees may pave the way to large plays for the ATC spectrum, making FCC action in the band unnecessary, said Tim Farrar, president of TMF Associates. The ability to offer 40 MHz of spectrum could make for significant competition with LightSquared and Clearwire, he said. TerreStar has about nine months to get an ATC spectrum deal worked out before the FCC weighs in on the issue. “Bankruptcy could be a mechanism for allowing them to do more,” said Farrar. “With their debt converted to equity, it is much more likelihood of something happening.” It’s unlikely that a bankruptcy filing would be enough to force the company to return spectrum, said a satellite industry executive.
EchoStar’s DIP financing and backstop could indicate a larger deal between EchoStar and Harbinger, said Credit Suisse analysts. If EchoStar ends up with control of TerreStar after the reorganization, the company could combine its holdings with LightSquared and serve as an “anchor tenant” on the LightSquared network, they said. Another satellite executive disputed this, noting that the addition of spectrum to the market largely hurts LightSquared. EchoStar declined to comment.