06.14.11

What’s happening with TerreStar?

Posted in Financials, ICO/DBSD, LightSquared, Operators, Regulatory, Spectrum, TerreStar at 3:32 pm by timfarrar

News emerged on Tuesday afternoon that TerreStar Networks (TSN) was close to agreeing a $1.2B to $1.4B stalking horse bid with DISH Networks. It appeared that DISH is likely to outbid a group of first lien debtholders and another bid from MetroPCS (possibly in conjunction with Harbinger), who jointly bid for DBSD with Solus and Harbinger back in March and were also outbid by DISH in that auction.

UPDATE: It has been confirmed to us that Harbinger was one of the parties attempting to acquire TerreStar’s spectrum assets, but its not clear whether Harbinger was aligned with MetroPCS or the other first lien holders (and it may even have been a potential customer/partner for both groups).

It seems that Harbinger had hoped to be in a position to announce a 2GHz first strategy, just as it planned back in March, in an attempt to head off the findings of tomorrow’s GPS Working Group report to the FCC which will state that testing demonstrated “widespread interference with GPS.” However, once again Harbinger may now have been thwarted by DISH.

UPDATE: Details on the agreed $1.375B stalking horse bid have now been filed with the Court. It is stated that the bid amount will exceed the secured debt (15% Notes plus PMCF plus DIP) by $90M. Thus the Exchangeable Notes (nearly $200M) and other unsecured creditors will have to make do with well under 50 cents on the dollar and no value would flow down to the equity holders in TSN (which is owned 88% by TerreStar Corporation and 12% by LightSquared). For these unsecured creditors to be paid in full and excess value to flow to the TSN equity would therefore require the winning bid in the auction to be increased to something between $1.5B and $1.6B (rather higher than I had previously estimated). Of course the disappointed equity holders (in TSN and by extension in TSC) may have some company, because at the current $1.375B bid level, Harbinger will also take a bath on its majority holdings of Exchangeable Notes, which it was buying at up to 82 cents on the dollar back in November.

Whether further bids might emerge in the subsequent auction is still unknown. The other first lien debtholders may be content to be paid in full in cash for their claim, though there were indications last night that they were still actively competing against DISH as the price rose towards $1.4B. Perhaps MetroPCS (and Harbinger?) could also try to outbid DISH in the auction itself. Unfortunately, that didn’t work in the DBSD case, and it could well be the case that no further bids emerge at the auction, given the protections that the successful stalking horse bidder will have.

If Harbinger is unsuccessful in securing rights to TerreStar’s 2GHz spectrum, its unclear where Harbinger and LightSquared go from here, unless Sprint is prepared to take LightSquared’s side in the GPS interference debate. However, if Harbinger did in fact team up once again with MetroPCS, that would make it harder to believe that a deal with Sprint is anything like as imminent as LightSquared has been hinting.

6 Comments »

  1. spectrum said,

    June 14, 2011 at 4:53 pm

    However, it seems likely that minimal or no value would flow down to the equity holders in TSN (which is owned 88% by TerreStar Corporation and 12% by LightSquared) unless the total bid is increased beyond $1.4B.

    So if TSN goes above 1.4B does that mean that 88% of the money above 1.4B will go to common stock holders of TSC…

  2. timfarrar said,

    June 14, 2011 at 5:26 pm

    No, the first ~$500M minus whatever value is attributed to the 1.4GHz spectrum will go to the TSC debtholders and preferred stockholders

  3. sandy_s157 said,

    June 14, 2011 at 6:51 pm

    Hi Tim,

    What do you make out of the TSC balance sheet statement in the link below?

    http://terrestarcorprestructuring.com/pdflib/97_10612.pdf

    Looks like the debt is less than total assets TSC owns. So why is TSC under bankrupcy?

    Also does the ~752 million include spectrum and satellite? The statement does not state it clearly. Can you clarify?

  4. timfarrar said,

    June 14, 2011 at 7:34 pm

    The assets of TSC documented in the balance sheet include $177M book value for the 1.4GHz spectrum (intangible assets), a small amount of cash and a large amount invested in/loaned to other companies (mostly TSN).

    As stated previously, the amount available to pay TSC’s ~$500M in debt and preferred stock is therefore basically equal to the value realized from the 1.4GHz spectrum plus any recovery from the TSN bankruptcy. Some of that may come through recoveries to unsecured creditors of TSN (on account of the loans to TSN) and some through the 88% equity stake in TSN (on account of the equity investments).

  5. spectrum said,

    June 14, 2011 at 8:08 pm

    But still could not understand why TSC is in BK as total assets is close to 752 milllion and the debt is arond 500 million….

  6. timfarrar said,

    June 14, 2011 at 8:36 pm

    Because most of the supposed “assets” are investments in a bankrupt company (TSN) which may never be recovered

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