05.08.12

TerreStar Corpse…

Posted in Financials, LightSquared, Operators, Spectrum, TerreStar at 1:39 pm by timfarrar

Last year most attention was focused on the October 2010 bankruptcy of TerreStar Networks, which owned the 2GHz satellite assets that Charlie Ergen purchased last June for $1.4B. Much less attention was paid to its parent, TerreStar Corporation, which filed for bankruptcy in February 2011 and owned the 8MHz of spectrum in the 1.4GHz band that was leased to LightSquared in September 2009.

The reorganization plan for TerreStar Corp contemplated that this lease (under which TerreStar receives $2M per month) would remain in place, and the company would be handed over to its preferred shareholders, led by Highland Capital, Solus and Harbinger. However, this plan now seems to be on the verge of unraveling after Harbinger dumped its Series B preferred shares (which had a face value of more than $100M) earlier this year (keeping only the worthless subordinated Series E shares), presumably so Harbinger could repay its $400M UBS loan at the end of January.

These shares were picked up West Face, but Harbinger then promptly stopped making the monthly payments on the 1.4GHz lease, with TerreStar Corp’s March 2012 results now showing $2M of accounts receivable due from LightSquared, whereas in previous months this revenue has been booked as it is received.

Now TerreStar Corp has been forced to postpone the confirmation hearing (originally set for April 11) and hire counsel to help figure out what options remain for the 1.4GHz spectrum. Most observers appear to agree that the Harbinger lease was above the market value for this spectrum, and Harbinger appears to have been unable to find anyone interested in taking over the lease when it attempted to monetize the spectrum in January this year. It remains unclear what recourse TerreStar Corp might have to sue LightSquared to recover the lease payments, given that LightSquared Inc, which controls the lease and is the parent of LightSquared LP (where most/all of the cash is held) appears to have few resources of its own.

So now the question is what happens next for TerreStar Corporation? Will the 1.4GHz spectrum be offered for open sale? Do Solus, Highland and West Face really want to own this spectrum? How will a valuation (and a potential cramdown of Elektrobit, which is an unsecured creditor of TerreStar Corp) be agreed without the lease? Whatever happens, this certainly looks like yet another mess that Falcone has got his one time partners at Solus into.

5 Comments »

  1. pfriend said,

    May 9, 2012 at 8:06 am

    Could Dish use the Lightsquared spectrum in FD-LTE as the up channel only to avoid the interference problem with GPS? The down channel could be the existing Dish spectrum bought from the other bankrupt sat companies that would not have the GPS interference problem. The FCC would like this as a way out of the fight with Falcone and Dish would get a bigger chunk of all usable spectrum.

  2. timfarrar said,

    May 9, 2012 at 8:39 am

    That would be technically possible in the upper part of the LightSquared L-band uplink, though there are still some interference concerns with the lower band uplink (closest to GPS) that will need to be resolved. In addition, there would have to be an agreement with Inmarsat (i.e. more spectrum lease payments).

    Why would DISH want to buy additional uplink spectrum when it already has an existing 2GHz uplink allocation? A plausible answer might be that DISH would then propose changing its 2GHz uplinks to downlinks and keeping them (rather than swapping to 1695-1710MHz as suggested under the NOI).

    That’s not completely out of the question, but would be complex, require a lot of rework in the 3GPP standards processes and could still easily be derailed by GPS interference issues. It would make it very hard to get a network up and running in the timeframe the FCC is requesting and is not compatible with the idea of getting an FCC decision in the next 6-9 months. I suspect it would be 18-24 months before we got close to a decision, and perhaps longer because of the need for more GPS testing. Also, if there is only 10MHz initially available for L-band uplinks (because of interference limitations) then is a 10MHz up and 40MHz down network a good option?

    All in all a more straightforward way to solve the FCC’s problem is just to promise to take it slow, establish interference standards, and wait a decade for these to come into force. Of course that’s not compatible with paying billions for the LightSquared spectrum, unless you treat it as some form of “anti-windfall” expenditure, similar to the Nextel rebanding costs.

  3. TMF Associates MSS blog » Up, down, spin around? said,

    May 10, 2012 at 6:50 pm

    [...] day in the world of LightSquared, where it appears nothing is ever as it seems! First of all, a comment yesterday on my last blog post gave some hints as to a completely different way to think about why Charlie Ergen might be [...]

  4. SammyBoy said,

    May 11, 2012 at 5:01 pm

    Any chance Clearwire and Dish get together in a network sharing agreement? Ergen has publicly stated he has no desire to build a network nor divest the 2-2.2GHz spectrum for a quick flip. He needs towers to host his network, so making a play for Lightsquared doesn’t make any sense. He doesn’t really need the extra L-band spectrum nor does he want to get into the hornet’s nest that is GPS intereference. So with whom does he partner? Given that McCaw and Ergen have somewhat of a connection through DBSD/ICO, and given that McCaw was essentially in the same position over a decade ago trying to utilize satellite spectrum for terrestrial purposes, would it be a logical fit?

  5. timfarrar said,

    May 11, 2012 at 7:14 pm

    In a word, no. What DISH is looking for is a partner with money and customers. Clearwire has neither (or at least the vast majority of the customers it does have belong to Sprint). Realistically, he could sell to AT&T, as many (including myself) have speculated, or he could partner with another player with money and customers.

    Sprint’s expectations seem to be that partners will bring money (a la LightSquared) not get it. Verizon has its own plans. Leap has no money. So amongst existing operators most likely we are left with just T-Mobile or MetroPCS. It might not be unreasonable to view talk of mergers (both TMO-MetroPCS and AT&T-Leap) as part of the negotiating battle with DISH.

    Then beyond facilities based wireless operators you have possibilities like DirecTV or America Movil or perhaps another foreign wireless operator, but probably not Apple or Google (because as many have said, they would alienate existing partners by getting into bed with a new entrant, whether LightSquared or DISH).

    This is really a game of poker and bluff about who holds the stronger hand – just look at AT&T’s filings with respect to DISH’s waiver application.

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