[Satellite TODAY Insider 10-21-10] Mobile satellite network operator TerreStar Networks has been forced to file for chapter 11 bankruptcy protection with the U.S. Bankruptcy Court in Manhattan after amassing $1.64 billion in liabilities.
    According to documents filed Oct. 19 with the U.S. Securities and Exchange Commission, the Reston, Va.-based company and its 12 affiliates are seeking to protect its $1.4 billion assets from creditors. TerraStar Network’s parent company TerreStar Corp. is not among the entities filing for chapter 11.
    “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 a statement.
    TerreStar’s announcement comes four weeks after the company and partner AT&T rolled out a satellite mobile service using TerreStar’s Genus dual-mode smartphone. TerreStar formed its partnership with AT&T after launching its first satellite, TerreStar-1, in July 2009. TerreStar-2 is under construction.
    EchoStar Corp. confirmed that it will provide TerreStar with $75 million of financing to help it operate while in bankruptcy. EchoStar, TerreStar’s largest secured creditor, will support a proposed debt-for-equity restructuring involving the company’s secured noteholders and backstop a $100 million rights offering to help it emerge from chapter 11. TerreStar’s largest outside shareholder is Harbinger Capital Partners, and TerreStar is being advised on the restructuring by a Blackstone Group LP affiliate.
    Separately, cellular technology developer ElektroBit (EB), which receives a majority of its business from TerreStar Networks, said the operator still owes EB $24.2 million out of the $25.7 million it was contracted for in 2007 to develop the structure of the Genus handset as well as technologies and reference designs for TerreStar’s satellite-terrestrial all-IP mobile network.
    In a statement, EB said TerreStar Networks’ court filings do not contain enough information on how receivables will be treated during reorganization and that the potential implications on the parties’ business relations cannot be currently evaluated. “Potential implications on EB will be announced later when reasoned analysis can be made. Based on EB’s current understanding, there is no reason to believe that EB would not be able to collect at least most of the receivables in due course.”
    This is not the frist time that TerreStar Networks has been close to financial peril. In January, the U.S. Federal Communications Commission (FCC) rushed to grant the operator ancillary terrestrial component (ATC) authority on Jan. 14 to operate TerreStar-1’s dual-mode mobile terminals. TerreStar Senior Vice President and Deputy General Counsel Alexandra Field sent an e-mail to FCC Associate Chief Karl Kensinger on Oct. 12, 2009, claiming TerreStar company might default on its TerreStar-2 satellite loans if the company did not receive an ATC license by Jan. 20., 2010.
     TerreStar secured loans in February 2008 for TerreStar-2 from EchoStar Corp., Harbinger Capital Partners Master Fund and Harbinger Capital Partners Special Situations Fund.
    “The deal under which we got financing for our second satellite — the one that will anchor the ATC — has an event of default related to ATC authorization. … Given how far we’ve gone on the second satellite and the fact that we will be in money raising mode by end of this year [2009], triggering the event of default would likely be catastrophic to the company,” Field wrote in the e-mail.

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